119154269 World Baworld bank NEW Docx

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STUDY OF THE FUNCTIONING OF WORLD BANK TYBMS SEM-V 1 A PROJECT REPORT ON “WORLD BANK” SUBMITTED BY: TEJAS THORAT FOR THE DEGREE OF THE BACHELOR OF MANAGEMENT STUDIES UNIVERSITY OF MUMBAI UNDER THE GUIDANCE OF PROF. ANAMIKA S.I.E.S. COLLEGE of ARTS, SCIENCE AND COMMERCE, NERUL, NAVI MUMBAI 400706 ACADEMIC YEAR 2012-2013

description

this document is about the world bankl

Transcript of 119154269 World Baworld bank NEW Docx

Page 1: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 1

A PROJECT REPORT ON

ldquoWORLD BANKrdquo

SUBMITTED BY

TEJAS THORAT

FOR THE DEGREE OF

THE BACHELOR OF MANAGEMENT STUDIES

UNIVERSITY OF MUMBAI

UNDER THE GUIDANCE OF

PROF ANAMIKA

SIES COLLEGE of ARTS SCIENCE AND COMMERCE

NERUL NAVI MUMBAI ndash 400706

ACADEMIC YEAR 2012-2013

STUDY OF THE FUNCTIONING OF WORLD BANK

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A PROJECT REPORT ON

ldquoWORLD BANKrdquo

STUDY OF THE FUNCTIONING OF WORLD BANK

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CERTIFICATE

I Ms ANAMIKA hereby certify that TEJAS THORAT student of SIES COLLEGE

OF ARTS SCIENCE AND COMMERCE NERUL has completed the project on

WORLD BANK in the academic year 2012-2013

The information submitted in this project is true and original to best of my knowledge

___________ ____________________________ ___________

EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLE

EXAMINER GUIDE

(Ms ANAMIKA) (Mrs NEERA (Mrs RITA

KUMAR) BASU)

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DECLARATION

I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE

and COMMERCE NERUL hereby declare that I have successfully completed this project

on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as

a part of Bachelor in Management Studies (BMS) program

The information presented through this project is true and original to the best of my

knowledge

Date

Place Navi Mumbai

TEJAS THORAT

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ACKNOWLEDGEMENT

I TEJAS THORAT would take this opportunity to thank the University for providing me an

opportunity to study the concept of WORLD BANK This has been a huge learning

experience for me

With a great pleasure I take this opportunity to acknowledge people who have made this

project work possible

I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college

my colleagues and librarians and other people for providing their help as and when required

to complete this project

I would also like to thank my parents for the tremendous help they have given me without

which the project would have not been possible

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

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INDEX

Sr No TITLE Page No

1 EXECUTIVE SUMMARY 7

2 OBJECTIVES OF THE STUDY 8

3 WORLD BANK HITORY 9-11

4 AFFILIATES OF THE WORLD

BANK

12-15

5 INTRODUCTION 16-18

6 OPERATIONS 19-23

7 MISSION OF THE WORLD BANK 24

8 STRATERGIES 25-29

9 LOANS 30-33

10 WORLD BANK AGENCIES 34-74

11 DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12 INDIA AND WORLD BANK 76

13 CHALLENGES 77-89

14 INDIA AND WORLD BANK

PARTNERSHIP

90-98

15 CONCLUSION 99

16 BIBILOGRAPHY 100

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EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

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OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

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WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

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BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

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It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

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AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

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(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

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National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 31

CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 32

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 2: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 2

A PROJECT REPORT ON

ldquoWORLD BANKrdquo

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 3

CERTIFICATE

I Ms ANAMIKA hereby certify that TEJAS THORAT student of SIES COLLEGE

OF ARTS SCIENCE AND COMMERCE NERUL has completed the project on

WORLD BANK in the academic year 2012-2013

The information submitted in this project is true and original to best of my knowledge

___________ ____________________________ ___________

EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLE

EXAMINER GUIDE

(Ms ANAMIKA) (Mrs NEERA (Mrs RITA

KUMAR) BASU)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 4

DECLARATION

I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE

and COMMERCE NERUL hereby declare that I have successfully completed this project

on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as

a part of Bachelor in Management Studies (BMS) program

The information presented through this project is true and original to the best of my

knowledge

Date

Place Navi Mumbai

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 5

ACKNOWLEDGEMENT

I TEJAS THORAT would take this opportunity to thank the University for providing me an

opportunity to study the concept of WORLD BANK This has been a huge learning

experience for me

With a great pleasure I take this opportunity to acknowledge people who have made this

project work possible

I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college

my colleagues and librarians and other people for providing their help as and when required

to complete this project

I would also like to thank my parents for the tremendous help they have given me without

which the project would have not been possible

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 6

INDEX

Sr No TITLE Page No

1 EXECUTIVE SUMMARY 7

2 OBJECTIVES OF THE STUDY 8

3 WORLD BANK HITORY 9-11

4 AFFILIATES OF THE WORLD

BANK

12-15

5 INTRODUCTION 16-18

6 OPERATIONS 19-23

7 MISSION OF THE WORLD BANK 24

8 STRATERGIES 25-29

9 LOANS 30-33

10 WORLD BANK AGENCIES 34-74

11 DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12 INDIA AND WORLD BANK 76

13 CHALLENGES 77-89

14 INDIA AND WORLD BANK

PARTNERSHIP

90-98

15 CONCLUSION 99

16 BIBILOGRAPHY 100

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 7

EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

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National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

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TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

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TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 3: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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CERTIFICATE

I Ms ANAMIKA hereby certify that TEJAS THORAT student of SIES COLLEGE

OF ARTS SCIENCE AND COMMERCE NERUL has completed the project on

WORLD BANK in the academic year 2012-2013

The information submitted in this project is true and original to best of my knowledge

___________ ____________________________ ___________

EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLE

EXAMINER GUIDE

(Ms ANAMIKA) (Mrs NEERA (Mrs RITA

KUMAR) BASU)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 4

DECLARATION

I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE

and COMMERCE NERUL hereby declare that I have successfully completed this project

on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as

a part of Bachelor in Management Studies (BMS) program

The information presented through this project is true and original to the best of my

knowledge

Date

Place Navi Mumbai

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 5

ACKNOWLEDGEMENT

I TEJAS THORAT would take this opportunity to thank the University for providing me an

opportunity to study the concept of WORLD BANK This has been a huge learning

experience for me

With a great pleasure I take this opportunity to acknowledge people who have made this

project work possible

I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college

my colleagues and librarians and other people for providing their help as and when required

to complete this project

I would also like to thank my parents for the tremendous help they have given me without

which the project would have not been possible

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 6

INDEX

Sr No TITLE Page No

1 EXECUTIVE SUMMARY 7

2 OBJECTIVES OF THE STUDY 8

3 WORLD BANK HITORY 9-11

4 AFFILIATES OF THE WORLD

BANK

12-15

5 INTRODUCTION 16-18

6 OPERATIONS 19-23

7 MISSION OF THE WORLD BANK 24

8 STRATERGIES 25-29

9 LOANS 30-33

10 WORLD BANK AGENCIES 34-74

11 DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12 INDIA AND WORLD BANK 76

13 CHALLENGES 77-89

14 INDIA AND WORLD BANK

PARTNERSHIP

90-98

15 CONCLUSION 99

16 BIBILOGRAPHY 100

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 7

EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 4: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 4

DECLARATION

I TEJAS THORATstudying in TYBMS of SIES COLLEGE OF ARTS SCIENCE

and COMMERCE NERUL hereby declare that I have successfully completed this project

on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as

a part of Bachelor in Management Studies (BMS) program

The information presented through this project is true and original to the best of my

knowledge

Date

Place Navi Mumbai

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 5

ACKNOWLEDGEMENT

I TEJAS THORAT would take this opportunity to thank the University for providing me an

opportunity to study the concept of WORLD BANK This has been a huge learning

experience for me

With a great pleasure I take this opportunity to acknowledge people who have made this

project work possible

I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college

my colleagues and librarians and other people for providing their help as and when required

to complete this project

I would also like to thank my parents for the tremendous help they have given me without

which the project would have not been possible

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 6

INDEX

Sr No TITLE Page No

1 EXECUTIVE SUMMARY 7

2 OBJECTIVES OF THE STUDY 8

3 WORLD BANK HITORY 9-11

4 AFFILIATES OF THE WORLD

BANK

12-15

5 INTRODUCTION 16-18

6 OPERATIONS 19-23

7 MISSION OF THE WORLD BANK 24

8 STRATERGIES 25-29

9 LOANS 30-33

10 WORLD BANK AGENCIES 34-74

11 DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12 INDIA AND WORLD BANK 76

13 CHALLENGES 77-89

14 INDIA AND WORLD BANK

PARTNERSHIP

90-98

15 CONCLUSION 99

16 BIBILOGRAPHY 100

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 7

EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 26

COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 27

LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 5: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 5

ACKNOWLEDGEMENT

I TEJAS THORAT would take this opportunity to thank the University for providing me an

opportunity to study the concept of WORLD BANK This has been a huge learning

experience for me

With a great pleasure I take this opportunity to acknowledge people who have made this

project work possible

I would also like to thank my BMS coordinator Prof NEERA KUMAR staff of my college

my colleagues and librarians and other people for providing their help as and when required

to complete this project

I would also like to thank my parents for the tremendous help they have given me without

which the project would have not been possible

TEJAS THORAT

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 6

INDEX

Sr No TITLE Page No

1 EXECUTIVE SUMMARY 7

2 OBJECTIVES OF THE STUDY 8

3 WORLD BANK HITORY 9-11

4 AFFILIATES OF THE WORLD

BANK

12-15

5 INTRODUCTION 16-18

6 OPERATIONS 19-23

7 MISSION OF THE WORLD BANK 24

8 STRATERGIES 25-29

9 LOANS 30-33

10 WORLD BANK AGENCIES 34-74

11 DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12 INDIA AND WORLD BANK 76

13 CHALLENGES 77-89

14 INDIA AND WORLD BANK

PARTNERSHIP

90-98

15 CONCLUSION 99

16 BIBILOGRAPHY 100

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 7

EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

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(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

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National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

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TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 6: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 6

INDEX

Sr No TITLE Page No

1 EXECUTIVE SUMMARY 7

2 OBJECTIVES OF THE STUDY 8

3 WORLD BANK HITORY 9-11

4 AFFILIATES OF THE WORLD

BANK

12-15

5 INTRODUCTION 16-18

6 OPERATIONS 19-23

7 MISSION OF THE WORLD BANK 24

8 STRATERGIES 25-29

9 LOANS 30-33

10 WORLD BANK AGENCIES 34-74

11 DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12 INDIA AND WORLD BANK 76

13 CHALLENGES 77-89

14 INDIA AND WORLD BANK

PARTNERSHIP

90-98

15 CONCLUSION 99

16 BIBILOGRAPHY 100

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 7

EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 7: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 7

EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction developing countries need strong

institutional capacity The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries It helps build capacity through a variety of means including technical

assistance studies equipment and training This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingmdashtraining individuals so they are better able

to contribute to their countryrsquos development goals

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training

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TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

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TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 26

COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 27

LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 31

CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 32

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 8: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 8

OBJECTIVE OF THE STUDY

1 To study how the World Bank helps in influencing the financial

market all over the globe

2 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

3 Topromote private investment by means of guarantee or participation in loans and

other investments made by private investors

4 To promote the long-range balanced growth of international trade and the

maintenance of equilibrium in balances of payments by encouraging international

investment

5 To assist in the reconstruction and development of territories of members by

facilitating the investment of capital for productive purpose

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 9: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 9

WORLD BANK HISTORY

Conceived during World War II at Breton Woods New Hampshire the World Bank initially

helped rebuild Europe after the war Its first loan of $250 million was to France in 1947 for

post-war reconstruction Reconstruction has remained an important focus of the Banks work

given the natural disasters humanitarian emergencies and post conflict rehabilitation needs

that affect developing and transition economies

Todays Bank however has sharpened its focus on poverty reduction as the overarching goal

of all its work It once had a homogeneous staff of engineers and financial analysts based

solely in Washington DC Today it has a multidisciplinary and diverse staff including

economists public policy experts sectorial experts and social scientists 40 percent of staff is

now based in country offices

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 26

COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 27

LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 10: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 10

BRETTON WOODS CONFERENCE JULY 1-22 1944

World War II was still on D-Day took place less than one month before

International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economic

depression had been the genesis of the Conference and the Fund proposal

The Bank was conceived of primarily as an instrument through which the physical

assets of the post-war world might be rebuilt Development financing would come

later

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 13

(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

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National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

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TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 11: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 11

It was the Latin American countries which were principally responsible for the

emphasis on development

Soviet Union represented at Bretton Woods but did not subsequently ratify the

Articles of Agreement of the Bank or Fund

World Bank was the first multilateral development bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

STUDY OF THE FUNCTIONING OF WORLD BANK

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(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 26

COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 12: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 12

AFFILIATES OF THE WORLD BANK

(1) Economic Development Institute (EDI)

Established January 9 1956

Purpose Help member countries improve the degree of economic management in

government by increasing the number of administrators skilled in dealing with problems of

economic policy and with the planning and administration of development programs

(2) International Finance Corporation (IFC)

Established July 20 1956

Purpose Promote sustainable private sector development primarily by

Financing private sector projects located in the developing world

Helping private companies in the developing world mobilize financing in international

financial markets

Providing advice and technical assistance to businesses and governments

(3) International Development Association (IDA)

Established September 24 1960

Purpose Act as the World Bankrsquos concessional lending window It provides long-term

loans at zero interest to the poorest of the developing countries

(4) International Centre for the Settlement of Investment Disputes (ICSID)

Established October 14 1966

Purpose Assist Contracting States and their nationals in settling by means of conciliation

or arbitration investment disputes between governments and foreign investors

(5) Operations Evaluation Unit

Established September 2 1970

Purpose Established by the President the Operations Evaluation Unit evaluates Bank

Group operations It is placed in the Programming and Budgeting Department

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(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

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National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

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commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 13: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19 1971

Purpose An informal association of public and private donors supporting a network of

international agricultural research centers

CGIAR convenes in Washington under chairmanship of the Bank but with its Technical

Advisory Group (TAG) headquartered at FAO Rome

(7) World Bank Staff Association

Established February 28 1972

Purpose Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association Its

report recommended the formation of a staff association and outlined its functions objectives

and general structure

Constitution drafting committee of three established to draft a constitution and rules of

procedure

Referendum held January-February 1972 Out of 2998 eligible voters 2528 cast ballots of

which 2339 voted ―yes and 189 voted ―no Nine ―yes votes arrived too late to be

counted

Provisional Delegate Assembly first met on April 26 1971 two delegates from each

department assembly would decide whether or not there would be a staff association and if

so which form it would take

(8) World BankAdministrative Tribunal

Established July 1979

Purpose A judicate staff grievances

September 1978 Round Table Conference on Legal Rights composed of staff and

management representatives Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances

but its recommendations are not binding on the Bank

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 15

INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 26

COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 14: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 14

National courts have been reluctant to adjudicate grievances of staff against the BankStaff

Association played a significant role in the process of establishing the Administrative

TribunalMembers of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation

First session began July 1 1980 in London

(9) Multilateral Investment Guarantee Agency

Established April 12 1988

―The purpose of the Agency is not solely to provide investment insurance Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries

(10)Inspection Panel

Established September 22 1993

Purpose The Inspection Panel is three-member non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 15: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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INTRODUCTION

The World Bank Group originated as a result of the Bretton Woods Conference of 1944 It is

one of the worldrsquos largest sources of development assistance and it has extended assistance to

more than 100 developing economies bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty For each of its clients the Bank works

with Government agencies nongovernmental organizations and the private sectors to

formulate assistance strategies Together with the separate International Monetary Fund the

World Bank organizations are often called the Bretton Woods institutions after Bretton

Woods New Hampshire where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944) The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements Commencing operations on 25 June1946 it approved its first loan on 9 May1947

($250m to France for postwar reconstruction in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world It is not a bank in the common sense Since it was set up in 1944 as the

International Bank for Reconstruction and Development the number of member countries

increased sharply in the 1950s and 1960s when many countries became independent nations

As membership

Grew and their needs changed the World Bank expanded and is currently made up of five

different agencies

STUDY OF THE FUNCTIONING OF WORLD BANK

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The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

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The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

STUDY OF THE FUNCTIONING OF WORLD BANK

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 16: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 16

The World Bank Group consists of five closely associated institutions each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world The term World Bank

refers specifically to two of the five ie The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA) The other

institutions are The International Finance Corporation (IFC) The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID) While all five specialize in different aspects of development they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards The IBRD focuses on middle income and

creditworthy poor countries while IDA focuses on the poorest countries in the world

Together it provides low-interest loans interest-free credit and grants to developing countries

for education health infrastructure communications and many other purposes

The World Banks activities are focused on developing countries in fields such as human

development (eg education health) agriculture and rural development (eg irrigation rural

services) environmental protection (eg pollution reduction establishing and enforcing

regulations) infrastructure (eg roads urban regeneration electricity) and governance (eg

anti-corruption legal institutions development) It provides loans at preferential rates to

member countries as well as grants to the poorest countries Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy

For example a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 17: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 17

The World Bank is one of the most highly-regarded financial institutions in the world

especially in the field of development economics and related research In addition World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation World Bank

also engages in funding the education of promising young people from developing countries

through its graduate scholarship programs

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OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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TYBMS SEM-V 27

LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 32

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 38

CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 39

A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 18: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 18

OPERATIONS

The World Banks two closely affiliated entitiesmdashthe International Bank for Reconstruction

and Development (IBRD) and the International Development Association (IDA)mdashprovide

low or no interest loans and grants to countries that have unfavorable or no access to

international credit markets Unlike other financial institutions we do not operate for profit

The IBRD is market-based and we use our high credit rating to pass the low interest we pay

for money on to our borrowersmdashdeveloping countries We pay for our own operating costs

since we donrsquot look to outside sources to furnish funds for overhead

I FUND GENERATION

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in

the worlds financial markets While IBRD earns a small margin on this lending the greater

proportion of its income comes from lending out its own capital This capital consists of

reserves built up over the years and money paid in from the banks 184 member country

shareholders IBRDrsquos income also pays for World Bank operating expenses and has

contributed to IDA and debt relief

IDA the worlds largest source of interest-free loans and grant assistance to the poorest

countries is replenished every three years by 40 donor countries Additional funds are

regenerated through repayments of loan principal on 35-to-40-year no-interest loans which

are then available for re-lending IDA accounts for nearly 40 of our lending

II LOANS

Through the IBRD and IDA we offer two basic types of loans and credits investment loans

and development policy loans Investment loans are made to countries for goods works and

services in support of economic and social development projects in a broad range of

economic and social sectors Development policy loans (formerly known as adjustment

loans) provide quick-disbursing financing to support countriesrsquo policy and institutional

reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 19: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 19

Each borrowerrsquos project proposal is assessed to ensure that the project is economically

financially socially and environmentally sound During loan negotiations the bank and

borrower agree on the development objectives outputs performance indicators and

implementation plan as well as a loan disbursement schedule While we supervise the

implementation of each loan and evaluate its results the borrower implements the project or

program according to the agreed terms As nearly 30 of our staff is based in some 100

country offices worldwide three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington

IDA long term loans (credits) are interest free but do carry a small service charge of 075

percent on funds paid out IDA commitment fees range from zero to 05 percent on un-

disbursed credit balances for FY06 commitment fees have been set at 030 percent For

complete information about IBRD financial products services lending rates and charges

please visit the World Bank Treasury Treasury is at the heart of IBRDs borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group

III GRANTS

Grants are designed to facilitate development projects by encouraging innovation co-

operation between organizations and local stakeholdersrsquo participation in projects In recent

years IDA grantsmdashwhich are either funded directly or managed through partnershipsmdashhave

been used to

Relieve the debt burden of heavily indebted poor countries

Improve sanitation and water supplies

Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIVAIDS pandemic

Support civil society organizations

Create initiatives to cut the emission of greenhouse gasses

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 20

IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 21

sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 22

MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 23

STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 25

COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 26

COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 20: 119154269 World Baworld bank NEW Docx

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IV ANALYTIC AND ADVISORY SERVICES

While we are best known as a financier another of our roles is to provide analysis advice

and information to our member countries so they can deliver the lasting economic and social

improvements their people need We do this in several ways through economic research on

broad issues such as the environment poverty trade and globalization and through country-

specific economic and sector work where we evaluate a countrys economic prospects by

examining its banking systems and financial markets as well as trade infrastructure poverty

and social safety net issues for example

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth By knowledge bank we mean the wealth of contacts knowledge

information and experience weve acquired over the years country by country and project by

project in our development work Our ultimate aim is to encourage the knowledge revolution

in developing countries

These are only some of the ways our analyses advice and knowledge are made

available to our client countries their government and development professionals and the

public

Poverty Assessment

Social and Structural Review

Public Expenditure Review

Sector Reports

Country Economic Memoranda

Knowledge Sharing

V CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff our partners and

the people in developing countriesmdashto help them acquire the knowledge and skills they need

to provide technical assistance improve government performance and delivery of services

promote economic growth and sustain poverty reduction programs Linkages to knowledge-

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 21: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development

Advisory Services and Ask Us help desks make information available by topic via

telephone fax email and the web There are more than 25 advisory services at the

bank Staff members who respond to inquiries

add value to the work of our own staff clients and partners by responding quickly to

their knowledge needs Often they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank

Global Development Learning Network is an extensive network of distance learning

centers that uses advanced information and communications technologies to connect

people working in development around the world

World Bank Institute Global and Regional Programs bring together leading

development practitioners online and face-to-face to exchange experiences and to

develop skills

B-SPAN web casting service is an Internet-based broadcasting station that presents

World Bank seminars workshops and conferences on sustainable development and

poverty reduction

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION OF THE WORLD BANK

STUDY OF THE FUNCTIONING OF WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 22: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION OF THE WORLD BANK

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

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TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 23: 119154269 World Baworld bank NEW Docx

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STRATEGIES

The World Bank continually strives to improve the delivery of its aid based on the lessons

learned from experience Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries

This is the philosophy behind the Banks Comprehensive Development Framework which

since 1999 has guided the way its assistance has been delivered to developing countries The

four main principles of the CDF are

Development strategies should be comprehensive and shaped by a long-term vision

Development goals and strategies should be owned by the country based on local

stakeholder participation in shaping them

Countries receiving assistance should lead the management and coordination of aid

programs through stakeholder partnerships and

Development performance should be evaluated through measurable results on the

ground in order to adjust the strategy to outcomes and a changing world

For low-income countries the Banks plans for assistance are based on Poverty

ReductionStrategies In preparing these strategies the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the countrys poverty

and economic situation The process is designed to develop country ownership of the

strategy as well as to foster greater openness in policymaking and increase government

commitment to policies After the Consultations the government identifies the countrys

priorities and targets for reducing poverty over a three to five year period The Bank and

other aid agencies then align their assistance efforts with the countrys own strategy - a

proven way of boosting aid effectiveness

The Banks main vehicle for making strategic choices about the program design and resource

allocations for individual countries is its Country Assistance Strategy which since July

2002 has been based on PRSPs when dealing with low-income countries In producing its

Country Assistance Strategy the Bank conducts extensive analysis of the countrys economic

and social situation in consultation with the government Studies may be conducted into

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 24

issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 24: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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issues such as poverty levels agriculture the health and education systems environmental

policies government procurement or financial management

Additionally the Bank has recently reviewed its role activities and effectiveness and the

development needs of countries in specific circumstances Low Income Countries Under

Stress Middle-Income Countries (MICs) and Small States

STUDY OF THE FUNCTIONING OF WORLD BANK

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

STUDY OF THE FUNCTIONING OF WORLD BANK

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 25: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction including the provision of external assistance

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty reducing inequity and improving opportunity for people in low- and

middle-income countries are the World Bank Groups central objectives The CDF is an

approach by which countries can achieve these objectives It emphasizes the interdependence

of all elements of developmentmdashsocial structural human governance environmental

economic and financial

STUDY OF THE FUNCTIONING OF WORLD BANK

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

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LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

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commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 26: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from the

International Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD) The CAS takes as its

starting point the countryrsquos own vision for its development as defined in a Poverty Reduction

Strategy Paper or other country-owned process Oriented toward results the CAS is

developed in consultation with country authorities civil society organizations development

partners and other stakeholders The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countryrsquos development strategy and based on the Bank

Grouprsquos comparative advantage in the context of other donor activities CASs are designed to

promote collaboration and coordination among development partners in a country

The CAS includes a comprehensive diagnosismdashdrawing on analytic work by the Bank the

government andor other partnersmdashof the development challenges facing the country

including the incidence trends and causes of poverty The CAS identifies the key areas

where the Bank Groups assistance

Can have the biggest impact on poverty reduction In its diagnosis the CAS takes into

account the performance of the Bankrsquos portfolio in the country the countryrsquos

creditworthiness state of institutional development implementation capacity governance

and other sectorial and cross-cutting issues From this assessment the level and composition

of Bank Group financial advisory andor technical support to the country is determined To

track implementation of the CAS program the CAS is increasingly results-focused It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 27

LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 31

CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 32

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 27: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 27

LOANS

HOW LOANS ARE MADE

The World Bank offers two basic types of loans investment loans for goods work and

services to support economic and social development projects in a broad range of sectors and

adjustment loans to support policy and institutional reforms

During loan negotiations the World Bank agrees with the borrowing country on the

development objective of the project or program outputs performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice Once a loan is

approved and becomes effective the borrower puts the project or program into practice

according to the terms agreed with the World Bank

The World Bank supervises how each loan is used and evaluates the results All loans are

governed by operational policies which make sure that operations are economically

financially socially and environmentally sound

VOTING POWERS

Like all corporate organizations each of the agencies of the World Bank Group has

shareholders these are the member countries Every shareholder is allocated a certain number

of votes linked to the size of its shareholding The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the memberrsquos voting

power

TYPES OF LOAN

The Bank has two basic types of lending instruments investment loans and development

policy loansInvestment loans have a long-term focus (5 to 10 years) and finance goods

works and services in support of economic and social development projects in a broad range

of sectors Development Policy loans have a short-term focuses (1 to 3 years) and provides

quick-disbursing external financing to support policy and institutional reforms

STUDY OF THE FUNCTIONING OF WORLD BANK

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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 32

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 28: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 28

Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development Over the past two decades investment lending has on average accounted for

75 to 80 percent of all Bank lending

The nature of investment lending has evolved over time Originally focused on hardware

engineering services and bricks and mortar investment lending has come to focus more on

institution building social development and building the public policy infrastructure needed

to facilitate private sector activity Projects range from urban poverty reduction (involving

private contractors in new housing construction for example) to rural development

(formalizing land tenure to increase the security of small farmers) water and sanitation

(improving the efficiency of water utilities) natural resource management (providing training

in sustainable forestry and farming) post-conflict

Reconstruction (reintegrating soldiers into communities) education (promoting the education

of girls) and health (establishing rural clinics and training health care workers)

Eligibility Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group

Disbursement Funds are disbursed against specific foreign or local expenditures related to

the investment project including pre-identified equipment materials civil works technical

and consulting services studies and incremental recurrent costs Procurement of these goods

works and services is an important aspect of project implementation To ensure satisfactory

performance the loan agreement may include conditions of disbursement for specific project

components

Instruments The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility Other

instruments tailored to borrowers specific needs are Technical Assistance Loans Financial

Intermediary Loans and Emergency Recovery Loans

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 29: 119154269 World Baworld bank NEW Docx

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TYBMS SEM-V 29

Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs to support structural reforms in a sector or the economy as a whole They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth Over the past two decades development policy lendingmdash

previously called adjustment lendingmdashhas accounted on average for 20 to 25 percent of

total Bank lending

Eligibility Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions and satisfactory macroeconomic

management Coordination with the IMF is an essential part of the preparation of a

development policy loan

Disbursement Funds are disbursed in one or more stages (tranches) Tranches are released

when the borrower complies with stipulated release conditions such as the passage of reform

legislation the achievement of certain performance benchmarks or other evidence of

progress toward a satisfactory macroeconomic framework

Instruments The new policy OPBP 860 applies uniformly to all development policy

lending replacing the previous different types of lending (eg RILs SALs SECALs

SNALs PSALs) Development policy operations in PRSP countries may continue to be

called PRSCs because this is by now a well-established brand name

World Bank Group Agencies

The World Bank Group consists of-

(1) The International Bank for Reconstruction Development (IBRD) established in 1945

(2) The International Finance Corporation (IFC) established in 1956

(3) The International Development Association (IDA) established in 1960

(4) The Multilateral Investment Guarantee Agency (MIGA) established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID) established in

1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 30

Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 41

IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

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TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 30: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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Governments can choose which of these agencies they sign up to individually The IBRD has

184 member governments and the other institutions have between 140 and 176 members

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors

with each Director representing either one country (for the largest countries) or a group of

countries Directors are appointed by their respective governments or the constituencies

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work

I INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY

Commencing operations on June 25 1946 it approved its first loan on May 9 1947 ($250m

to France for postwar reconstruction in real terms the largest loan issued by the Bank to

date)

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II with an additional mandate to foster economic growth in developing countries

in Africa Asia and Latin America Originally the bank focused mainly on large-scale

infrastructure projects building highways airports and power plants

As Japan and its European client countries graduated (achieved certain levels of income

per capita) the IBRD became focused entirely on developing countries

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

STUDY OF THE FUNCTIONING OF WORLD BANK

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 31: 119154269 World Baworld bank NEW Docx

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CURRENT SCENARIO

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII

Now its mission has expanded to fight poverty by means of financing states Its operation is

maintained through payments as regulated by member states It came into existence

inDecember

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 32: 119154269 World Baworld bank NEW Docx

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The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

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of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

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poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 33: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 33

The IBRD provides loans to governments and public enterprises always with a government

(or sovereign) guarantee of repayment The funds for this lending come primarily from the

issuing of World Bank bonds on the global capital markets - typically $12-15 billion per year

These bonds are rated AAA (the highest possible) because they are backed by member states

share capital as well as by borrowers sovereign guarantees (In addition loans that are repaid

are recycled (relent)) Because of the IBRDs credit rating it is able to borrow at relatively

low interest rates As most developing countries have considerably lower credit ratings the

IBRD can lend to countries at interest rates that are usually quite attractive to them even after

adding a small margin (about 1) to cover administrative overheads

MISSIONS AND PRINCIPLES

The mission of the Bank is to

Fight poverty with passion and professionalism for lasting results

Help people help themselves and their environment by providing resources sharing

knowledge building capacity and foreign partnership in the public and private

sectors

Be an excellent institution able to attract excite and nurture diverse and committed

staff with exceptional skills who know how to listen and learn

The Principles of the Bank is

Client Centric

Working in partnership

Accountable for quality results dedicated to financial integrity and cost-effectiveness

Inspire and be innovative

PURPOSES

The purposes of the Bank as laid down in its Articles of Agreement are

To assist in the reconstruction and development of the territories of the members by

facilitating the investment of capital for productive purposes including the restoration

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 38

CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 39

A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

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commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 34: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 34

of economies destroyed by war the reconversion of productive facilities to peace time

needs and the encouragement of the development of productive facilities and

resources in the less developed countries

To promote private foreign investment by means by means of guarantees or

participation in loans and other investments made by private investors and when

private capital is not available on reasonable terms to supplement private investments

by providing on suitable conditions finance for productive purposes out of its own

capital funds raised by it and other resources

To promote long-range balanced growth of internal trade and the maintenance of

equilibrium in the balance of payments by encouraging international investments of

the productive resources of members thereby assisting in raising productivity the

standard of living and conditions of labour in their territories

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 35

GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 41

IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 35: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

In its lending operation the Bank is guided by certain policies which have been formulated

on the basis of Articles of Agreement

First the Bank should properly assess the repayment prospects of the loans For this

purpose it should consider the availability of natural resources and productive plant

capacity to exploit the resources and operate the plant and the countries past debt

record

Secondly the Bank should lend only for specific projects which are economically and

technically sound and of a high priority nature Most

Bank loans have been made for basic utilities such as power and transport which are

prerequisites for economic development

Thirdly the Bank lends only to enable a country to meet the foreign exchange content

of any project cost it normally expects the borrowing country to mobilize its domestic

resources

Fourthly the Bank does not expect the borrowing country to spend the loan in a

particular country in fact it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance

Fifthly it is the Banks policy to maintain continuing relations with borrowers with a

view to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries

Lastly the Bank indirectly attaches special importance to the promotion of local

private enterprise

LENDING PROGRAMMES

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways telecommunications and ports and power facilities its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

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(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

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STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 36: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 36

poor people of developing countries by integrating them as active partners in the

development process

The following are the Lending Programmers of the Bank

Structural Adjustment Lending

The Bank in response to the deteriorating prospects for the developing countries during

the 1980rsquos inaugurated a programme of Structural Adjustment Lending (SAL) This

lending supports programmes of specific

policy changes and institutional reforms to achieve a more efficient use of resources and

thereby

(a) Contribute to a more sustainable balance of payment in the medium and long term and

to the maintenance of growth in the face of severe constraints and

(b) Lay the basis for regaining momentum of future growth

Special Action Programme

In 1983 the Bank initiated its Special Action Programme (SAP) designed to increase

assistance to countries that were making efforts to cope with the exceptionally difficult

economic environment brought on by a global recession

B-Loan and Export Credit

In January 1983 the Executive Director authorised the establishment of a new set of

financing instruments to help the Banks borrowers increase and stabilise flows of private

capital on approved terms by linking part of commercial bank flows to IBRD operations

These instruments which comprise the B-loan pilot programme include three options ie

(a) Direct Bank participation in the late maturities of a B-Loan

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 38

CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

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TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 37: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 37

(b) Bank guarantee of late maturities with the possibility of release from all or a part of

its share and

(c) Bank acceptance of a contingent obligation to finance an element of deferred

principal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment

II INTERNATIONAL DEVELOPMENT ASSOCIATION

HISTORY

The International Bank for Reconstruction and Development (IBRD) better known as the

World Bank was established in 1944 to help Europe recover from the devastation of World

War II The success of that enterprise led the Bank within a few years to turn its attention to

the developing countries By the 1950s it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank so they could afford to

borrow the capital they needed to grow

With the United States taking the initiative a group of the Bankrsquos member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible

They called the agency the International Development Association Its founders saw IDA

as a way for the haves of the world to help the have-nots But they also wanted IDA to be

run with the discipline of a bank

For this reason US President Dwight D Eisenhower proposed and other countries agreed

that IDA should be part of the World Bank (IBRD)

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

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A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

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TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 38: 119154269 World Baworld bank NEW Docx

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TYBMS SEM-V 38

CURRENT SCENARIO

The International Development Association (IDA) created on September 24 1960 is a UN

specialized agency It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper and

forms part of the World Bank Group based in Washington DC

The International Development Association (IDA) provides grants and soft loans with

repayment periods of some 30 years and no interest to the poorest countries (generally with

per capita incomes below $500 per year) IDA concessionary lending is funded by direct

contributions from member states which subsidies the difference between the IBRDs costs

and the price charged to IDA borrowers

IBRD and IDA are run on the same lines They share the same staff and headquarters report

to the same president and evaluate projects with the same rigorous standards But IDA and

IBRD draw on different resources for their lending and because IDArsquos loans are deeply

concessional IDArsquos resources must be periodically replenished (see IDA Funding below)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 39

A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 40

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TYBMS SEM-V 41

IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

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TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

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TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

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TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 39: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 39

A country must be a member of IBRD before it can join IDA 165 countries are IDA

members

IDAs Articles of Agreement became effective in 1960 The first IDA loans known as

credits were approved in 1961 to Chile Honduras India and Sudan

IDArsquos MISSION

The International Development Association (IDA) is the part of the World Bank that helps

the earthrsquos poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals They must for example respond to the competitive

pressures as well as the opportunities of globalization arrest the spread of HIVAIDS and

prevent conflict or deal with its aftermath

IDArsquos long-term no-interest loans pay for programs that build the policies institutions

infrastructure and human capital needed for equitable and environmentally sustainable

development IDArsquos goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy reducing poverty and

promoting more equal access to the opportunities created by economic growth

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 40

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 41

IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

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water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 40: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 40

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TYBMS SEM-V 41

IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

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IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 41: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 41

IDAs BORROWERS

IDA lends to those countries that had an income in 2005 of less than $1025 per person and

lack the financial ability to borrow from IBRD Some blend borrower countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy Eighty-one countries are

currently eligible to borrow from IDA Together these countries are home to 25 billion

people half of the total population of the developing world Most of these people an

estimated 15 billion survive on incomes of $2 or less a day

IDA LENDING

IDA credits have maturities of 20 35 or 40 years with a 10-year grace period before

repayments of principal begins IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects There is no interest charge but credits do carry a small service charge

currently 075 percent on funds paid out See the terms of IDA lending

In fiscal year 2006 (which ended June 30 2006) IDA commitments totaled $95 billion New

commitments in FY06 comprised 167 new operations Fifty percent of new

commitments went to Sub Saharan Africa 27 percent to South Asia 11 percent to East Asia

and the Pacific 5 percent to Eastern Europe and Central Asia and the remainder to poor

countries in North Africa and in Latin America The leading IDA borrowers in FY06 are

listed in Table 1

Since 1960 IDA has lent $170 billion to 108 countries Annual lending figures have

increased steadily and averaged about $91 billion over the last three years

Most loans address basic needs such as primary education basic health services and clean

water and sanitation IDA also funds projects that safeguard the environment improve

conditions for private business build infrastructure and support reforms to liberalize

countries economies and strengthen their institutions All these projects pave the way toward

economic growth job creation higher incomes and better living conditions

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 42

FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 43

IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 42: 119154269 World Baworld bank NEW Docx

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TYBMS SEM-V 42

FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500

Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 43

IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 43: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 43

IDA FUNDING

While the IBRD raises most of its funds on the worlds financial markets IDA is funded

largely by contributions from the governments of the richer member countries Additional

funds come from IBRDs income and from borrowers repayments of earlier IDA credits

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions

Donors get together every three years to replenish IDA funds Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment which finances projects

over the three-year period ending June 30 2008 The largest pledges to IDA14 were made by

the United States the United Kingdom Japan Germany France Italy and Canada but less

wealthy nations also contribute to IDA Turkey and Korea for example once IDA borrowers

are now donors Countries currently eligible to borrow from IBRD (but not from IDA) ndash

Brazil Czech Republic Hungary Mexico Poland Russia the Slovak Republic and South

Africa ndash are also IDA14 donors Other contributors include Australia Austria Barbados

Belgium Denmark Finland Greece Iceland Ireland Israel Kuwait Luxembourg

Netherlands New Zealand Norway Portugal Saudi Arabia Singapore Slovenia Spain

Sweden Switzerland and Venezuela

To increase openness and help ensure that IDArsquos policies are responsive to country needs and

circumstances representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations

PURPOSE

IDA helps to reduce poverty by collaborating with other development partners as well as

through its own programs IDA has learned from experience that development programs are

most successful when the borrower country ndash not just the government but non-governmental

organizations (NGOs) and other representatives of civil society ndash acquires a sense of

ownership of the programs through deep involvement in their design and execution In each

country IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage In IDA13

IDA targeted human-development projects in areas like education health social safety nets

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 44: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 44

water supply and sanitation (36) law justice and public administration (23) industry

(18) infrastructure (14) and agriculture and rural development (8)

ORIENTATION

Sound economic policies rural development private business and sustainable

environmental practices

Investment in people in education and health especially in the struggle against

HIVAIDS malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountability

for public resources

Recovery from civil strife armed conflict and natural disaster and

Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health primary

Education literacy and clean water IDA is now the single largest source of donor funds for

basic social services in the poorest countries

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden

Globalization ndash the increasing integration of world markets and societies ndash has allowed

China India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it IDArsquos work in this area emphasizes

measures to improve the investment climate enhance regional integration particularly in

Africa strengthen competitiveness remove barriers to the markets of industrial countries

and forge partnerships that enable acquisition of appropriate skills and infrastructure

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 52

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

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It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 45: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 45

LENDING PROGRAMME

IDAs 81 eligible borrowers have very significant needs for concessional funds But the

amounts of funds available for lending which is virtually fixed once donations are pledged by

donor governments tends to be well below the countries need IDA therefore must allocate

scarce resources among eligible borrowing countries This note describes how this is done on

the basis of borrowers policy performance and institutional capacity in order to concentrate

resources where they are likely to be most helpful in reducing poverty

1 Eligibility

Three criteria are used to determine which countries are eligible to borrow IDA resources

Relative poverty defined as GNP per capita below an established threshold US$1025

(as of July 1 2006)

Lack of creditworthiness to borrow on market terms and therefore a need for

concessional resources to finance the countrys development program

Good policy performance defined as the implementation of economic and social

policies that promote growth and poverty reduction

2 Allocation Criteria

The main factor that determines the allocation of IDA resources among eligible countries is

each countrys performance in implementing policies that promote economic growth and

poverty reduction This bas been assessed by the Country Policy and Institutional Assessment

(CPIA) To fully underscore the role of the CPIA in the IDA Performance Based

Allocations the overall country score is referred to as the IDA Resource Allocation Index

(IRAI) In addition to the IRAI portfolio performance and governance also feature in the

allocation process Together the IRAI portfolio performance and governance constitute the

IDA Country Performance Rating (CPR) In addition to the CPR population and per capita

income also determine IDA allocations

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 46

3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

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rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

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emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

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IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

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BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 46: 119154269 World Baworld bank NEW Docx

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3 Performance Ratings

Every year World Bank staff assesses the quality of each borrowers policy performance The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings

Beginning in 1998 the country performance assessment was broadened to include an

appraisal not only of the governments policies but also of the institutions in place to

implement them The 16 performance criteria are grouped into four clusters

Structural Policies

Policies for Social InclusionEquity

Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that starting with the results for 2005 the numerical IDA country performance ratings

would be disclosed

The performance assessment also takes into account the performance of the countrys active

project portfolio performance The combined rating is scaledup or down depending on the

strength of the countrys governance performance resulting into the IDA Country

Performance Rating (CPR)

4 Allocation Process

The allocation of IDAs resources is determined primarily by each borrowers rating in the

annual country performance and institutional assessment In addition the IDA14

Agreement recommends that because the acceleration of economic and social development in

Sub-Saharan Africa remains foremost among IDAs priorities these countries should receive

priority in the allocation process provided their policy performance warrants it

In the case of borrowers that are eligible for both IDA and IBRD funds (Blend countries)

the IDA allocations must also take into account those countries creditworthiness for and

access to other sources of funds

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

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CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

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The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

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GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

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STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 47: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 47

Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs

5 Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations As a result actual lending on per capita terms is robustly correlated with

performance levels The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments

and had been doing so effectively Yet in its initial years some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries

The economies of poor countries were still in very early stages of development lacking the

human resources physical infrastructure and sound institutions needed to raise incomes and

improve living standards Private sector investment in developing countries was small and

not much thought was given to increasing it It was into this environment that IFC was born

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 48: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 48

CURRENT SCENARIO

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve peoples lives

IFC is a member of the World Bank Group and is headquartered in Washington DC It shares

the primary objective of all World Bank Group institutions to improve the quality of the

lives of people in its developing member countries IFC Mission Statement

Established in 1956 IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world It promotes sustainable private sector

development primarily by

1 Financing private sector projects located in the developing world

2 Helping private companies in the developing world mobilize financing in

international financial markets

3 Providing advice and technical assistance to businesses and governments

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 49: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 49

MISSION AND PRINCIPLES

Our mission is to promote sustainable private sector investment in developing countries

helping to reduce poverty and improve peoples lives

Shared Principles and Practices

IFC a member of the World Bank Group is a global investor and advisor that is committed

to promoting sustainable projects in our developing member

Countriesthose are economically beneficial financially and commercially sound and

environmentally and socially sustainable

We believe that sound economic growth is key to poverty reduction that it is grounded in the

development of entrepreneurship and successful private investment and that a conducive

business environment is needed for the latter to thrive and contribute to improving peoples

lives

We seek to continuously improve our performance by responding to clients promptly sharing

our successes and learning from our experience

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

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Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 50: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 50

The following are the principles of IFC

(a) Added Value

IFC adds value to our developing member countries by

Taking educated risks that the private sector will not take alone

Pioneering opportunities in frontier countries and sectors to maximize our projects

demonstration effect and catalytic role

Innovating by developing new products and services that better meet our clients

needs

Providing quality advice when the private sector is unwilling or unable to do so

(b) Integrity

Holding ourselves and our clients to the highest professional and ethical standards

Recognizing in every investment the importance and value of good corporate

governance

Seeking to be transparent accountable and equitable and

Being honest open and fair in our dealings with each other with our clients and with

local communities

(c) Environmental and Social Sustainability

Ensuring that our projects attain high environmental and social standards

Consulting with local communities on project-specific environmental and social

impacts and opportunities

Working with responsible clients and other lenders and local NGOs and

Listening actively and responding to stakeholders and their concerns

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

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TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

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STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 51: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 51

GUIDING PRINCIPLES

To be eligible for IFC funding a project must meet a number of criteria The project must

Be located in a developing country that is a member of IFC

Be in the private sector

STUDY OF THE FUNCTIONING OF WORLD BANK

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STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

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IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

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MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

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TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 52: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 52

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

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TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

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CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

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participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 53: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 53

Be technically sound

Have good prospects of being profitable

Benefit the local economy and

Be environmentally and socially sound satisfying IFC environmental and social

standards as well as those of the host country

The following are the Guiding Principles of the IFC

(a) Investment Proposal

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting an investment proposal

After this initial contact and a preliminary review IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project

IFCs projectinvestment cycle illustrates the stages a business idea goes through as it

becomes an IFC-financed project

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects it may provide finance for a

company with some government ownership provided there is private sector participation and

the venture is run on a commercial basis Although IFC does not accept government

guarantees for its financing its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings

To ensure the participation of investors and lenders from the private sector IFC limits the

total amount of own-account debt and equity financing it will provide for any single project

For new projects the maximum is 25 percent of the total estimated project costs or on an

exceptional basis up to 35 percent in small projects

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject However the

bulk of the funding as well as leadership and management responsibility lies with private

sector owners

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

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National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

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TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

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TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 54: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 54

LENDING PROGRAMMES

IFCs equity and quasi-equity investments are funded out of its net worth the total of paid in

capital and retained earnings Strong shareholder support triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets Retained earnings now represent almost three-

quarters of IFCs net worth of $98 billion (end-June 2006)

Within the World Bank Group the World Bank finances projects with sovereign guarantees

while the IFC finances projects without sovereign guarantees This means that the IFC is

primarily active in private sector projects although some projects in the public sector (at the

municipal or sub-national level) have recently been funded

Private sector financing is IFCs main activity and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history) Like a bank IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects

IFCs activities however must meet a second test of contributing to a reduction in poverty in

line with its mandate In practice this is broadly interpreted but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes and

(ii) Improving the developmental outcome of projects by various means

Apart from its core investment activities IFC also carries out technical cooperation projects

in many countries to improve the investment climate These activities may be linked to a

specific investment project or increasingly to broader goals such as improving the

legislative environment for a specific industry IFCs technical cooperation projects are

generally funded by donor countries or from IFCs own budget

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

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WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

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TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

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TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 55: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 55

IVMULTILATERAL INVESTMENT GUARANTEE

AGENCY

CURRENT SCENARIO

The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank

group It was established to promote foreign direct investment into developing countries

MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in

Washington DC

MIGA promotes foreign direct investment into developing countries by insuring investors

against political risk insurance advising governments on attracting investment sharing

information through on-line investment information services and mediating disputes between

investors and governments MIGA also requires host country government approval for every

project MIGA tries to work with host governments - resolving claims before they are filed

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 56: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 56

MISSION

As a member of the World Bank Group MIGAs mission is to promote foreign direct

investment (FDI) into developing countries to help support economic growth reduce poverty

and improve peoples lives

Foreign direct investors can play a critical role in reducing poverty by building roads for

example providing clean water and electricity and above all providing jobs By taking on

these tasks the private sector can help economies grow and avert the need for governments to

use funds better spent on acute social needs while taking advantage of the opportunity to

make profitable investments

PURPOSE

MIGAs operational strategy plays to our foremost strength in the marketplacemdashattracting

investors and private insurers into difficult operating environments The agencys strategy

focuses on specific areas where we can make the greatest difference

Infrastructure development is an important priority for MIGA given the estimated

need for $230 billion a year solely for new investment to deal with the rapidly

growing urban centers and underserved rural populations in developing countries

Frontier marketsmdashhigh-risk andor low-income countries and marketsmdashrepresent

both a challenge and an opportunity for the agency These

Markets typically have the most need and stand to benefit the most from foreign

investment but are not well served by the private market

Investment into conflict-affected countries is another operational priority for the

agency While these countries tend to attract considerable donor goodwill once

conflict ends aid flows eventually start to decline making private investment critical

for reconstruction and growth With many investors wary of potential risks political

risk insurance becomes essential to moving investments forward

South-South investments (investments between developing countries) are

contributing a greater proportion of FDI flows But the private insurance market in

these countries is not always sufficiently developed and

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 57: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 57

National export credit agencies often lack the ability and capacity to offer political

risk insurance

GUIDING PRINCIPLES

Confidence security and credibility MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries As part of the

World Bank Group and having as our shareholders both host countries and investor

countries MIGA brings security and credibility to an investment that is unmatched Our

presence in a potential investment can literally transform a no-go into a go We act as a

potent deterrent against government actions that may adversely affect investments

And even if disputes do arise our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

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LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

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2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 58: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 58

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

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TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

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For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

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For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

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TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 59: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 59

Market leader MIGA is a leader when it comes to assessing and managing political risks

developing new products and services and finding innovative ways to meet client needs But

we dont stop there We also provide expert advice to help countries attract and retain quality

foreign investment and a host of online services to make sure investors know about business

opportunities in our developing member countries

Complex deals MIGA can be the difference between make or break by providing that all-

critical lynchpin that enables a complex transaction to go ahead MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects We can also cover interest rate hedging instruments as we did for a

power project in Vietnam as well as provide capital markets guarantees which we recently

did for residential mortgage-backed securities in Latvia

PRI market MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs By doing so we are able to

expand the capacity of the political risk insurance industry to insure investments as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries Guarantees protect investors against the risks of Transfer

Restriction Expropriation War and Civil Disturbance and Breach of Contract (for contracts

between the investorproject

enterprise and the authorities of the host country) These coverages may be purchased

individually or in combination

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

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TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

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TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 60: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 60

V INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT

DISPUTES

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 61: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 61

HISTORY

In the past the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes between

governments and private foreign investors The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes But the Banks

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14 1966

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 62: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 62

CURRENT SCENARIO

The International Centre for Settlement of Investment Disputes (ICSID) an institution of

the World Bank group was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention) As of May 2005 155 countries had signed the ICSID Convention

ICSID is an autonomous international organization However it has close links with the

World Bank All of ICSIDs members are also members of the Bank Unless a government

makes a contrary designation its Governor for the Bank sits ex officio on ICSIDs

Administrative Council The expenses of the ICSID Secretariat are financed out of the Banks

budget although the costs of individual proceedings are borne by the parties involved

ICSID has an Administrative Council chaired by the World Banks President and a

Secretariat It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors

During the past decade with the proliferation of bilateral investment treaties (BITs) most of

which refer present and future investment disputes to the ICSID the caseload of the ICSID

has substantially increased As of June 30 2005 ICSID had registered 184 cases more than

30 of which were pending against Argentina ndash Argentinas economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

ArgentinaICSIDrsquos headquarters are located in Washington DC

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 63: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 63

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 64: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 64

DIFFERENCE BETWEEN IMF AND WORLD BANK

Sr

No

IMF WORLD BANK

1

Purpose

Monetary Institution

Development Institution

2

Activities

Stabilisation of the

international monetary

system Finance of

temporary balance of

payment deficits

Promotion of economic growth

and development in developing

countries

3 Source of

funds

Official reserves and

countries currencies

Special Drawing Rights

(SDRs)

Capital quotas Issues in the

international market

4 Eligible

Borrowers

All members Developing countries

5 Outlook Short Term Long-Term

6 Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7 Staff 2700 9500

INDIA amp THE WORLD BANK

With some 11 billion people diverse regions and a vibrant democracy India has been

making progress on a scale size and pace that is unprecedented in its own history In the

nearly 60 years since its independence the country has been successful on a number of

fronts

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 65: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 65

It has maintained electoral democracy

Banished the specter of famines

Reduced absolute poverty by more than half

Dramatically improved literacy

Vastly improved health conditions

Become one of the worldrsquos fastest growing economies with average growth rates of

8 over the past three years

Emerged as a global player in information technology business process outsourcing

telecommunications and pharmaceuticals

Is now the worldrsquos fourth largest economy in purchasing power parity terms

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 66: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 66

CHALLENGES

The countryrsquos achievements have however created new challenges Some of the most

prominent are

1 Improving theDelivery of Core Public Services

As incomes rise citizens are demanding better delivery of core public services such as water

and power supply education policing sanitation roads and public health And as physical

access to services improves issues of quality have become more central

EducationWhile India has made huge progress in getting more children into primary

school learning outcomes have yet to make more headway

Health Although population growth has fallen below 2 per year due to declining fertility

there has been little improvement in maternal mortality rates Despite falling child mortality

rates remain high as they are strongly related to child malnutrition where little progress has

been made

Infrastructure Power networks roads transportation systems and ports are facing huge

demands from Indiarsquos rapidly growing economy But shortages are eroding the countryrsquos

competitiveness and hurting the growth of labor-intensive enterprises particularly export-

oriented manufacturing which has the potential to absorb Indiarsquos fast-growing working

population

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 67: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 67

2 Making Growth More Inclusive

Substantial disparities persist within the country In a marked departure from previous

decades reforms of the 1990s were accompanied by a visible increase in income inequality

Although this continues to be relatively low by global standards disparities between urban

and rural areas prosperous and lagging states skilled and low-skilled workers are growing

Inequality can have huge social costs and evidence of social unrest in some disadvantaged

regions is growing

Agriculture Slow agricultural growth is a concern for policymakers as some two-thirds of

Indiarsquos people depend on rural employment for a living Current agricultural practices are

neither economically nor environmentally sustainable andIndias yields for many agricultural

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 68: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 68

commodities are low Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible Farmers access to markets is hampered

by poor roads rudimentary market infrastructure and excessive regulation

Jobs While the services sector booms with promising job opportunities for skilled workers

some 90 of Indiarsquos labor force remains trapped in low productivity informal sector jobs

Lagging StatesFaster economic growth has seen rising inter-state disparities While Indiarsquos

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries its poorer states - Assam Bihar Chhattisgarh Jharkhand Madhya

Pradesh Orissa Rajasthan and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts

3 Sustaining Growth

Maintaining high growth will also require attention to some basics

Fiscal deficit While the country has improved its fiscal indicators recently further

improvements will be needed to reduce risks to fiscal stability and more importantly to

create the space to fund the countryrsquos large infrastructure needs and ambitious social

development programs

Trade Deficit The trade deficit is large and has widened due to high oil prices and increased

non-oil imports Nevertheless Indiarsquos vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt and buoyant exports of services

Ongoing Reform Redoubling of reforms that address the basic constraints to growth is

essential as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth

PrioritiesGovernment policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive The 11th

Plan approach paper lays out the Governmentrsquos

priorities in this direction A variety of Government initiatives have been launched to build

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 69: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 69

rural infrastructure (Bharat Nirman) address employment (NREGA) uplift rural health

(NRHM) address primary education (SSA) and renew urban infrastructure (NURM)But for

these and other programs to be effective it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at all

levels

Public sector services reform Indiarsquos core public services such as healthcare education

power water supply and transportation need urgent improvement This will require systemic

reform of the public sector service providers implementingeffective systems of accountability

to citizens decentralizing responsibilities and expanding the role of non-state service

providers

InfrastructureIndianeeds to invest an additional 3-4 of GDP on infrastructure to sustain

its current levels of growth and to spread the benefits of growth more widely Although this

will clearly require a government role the relative roles of the government and private sector

need to be defined

Agricultural and rural development Raising agricultural productivity requires a return to

investments in agricultural technology and infrastructure Getting the rural economy moving

will also require facilitating rural - non-farm - entrepreneurship The bright spot on the

horizon is that the private sector is now looking at the rural areas as a potentially important

market and is increasing its investments accordingly thereby opening up new opportunities

for Indian farmers

Labor regulations Indiarsquos labor regulations - among the most restrictive and complex in the

world - have constrained the growth of the formal manufacturing sector where these laws

have their widest application Better designed labor regulations can attract more labor-

intensive investment and create jobs for

Indiarsquos unemployed millions and those trapped in poor quality jobs Given the countryrsquos

momentum of growth the window of opportunity must not be lost for improving the job

prospects for the 80 million new entrants who are expected to join the work force over the

next decade

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 70: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 70

WORLD BANK SUPPORT TO INDIA

The assessment of the development effectiveness evaluation of the Banks assistance to India

began during the 1990s India was one of the Banks founding members and remains one of

its largest and most influential borrowers The Bank has been Indias largest source of

external long-term capital and has financed a sizable share of its public investment Its

lending and non-lending services have been thinly spread over many central and state

agencies and have addressed many different objectives

India entered the decade with substantial economic and social achievements but also with

closed trade and investment regimes fiscal imbalances and a large and unwieldy public

sector After a balance of payments crisis in 1991 it deregulated the trade and investment

regimes Economic growth rebounded quickly and proved resilient even during the 1997 East

Asian crisis Social indicators also improved India however failed to sustain the reform

process in the fiscal area and to broaden it to other structural areas Moreover there was little

progress in reducing rural poverty largely due to the absence of an effective agricultural and

rural development strategy and low growth in the poorer northern and eastern states In the

second half of the 1990s a few states initiated substantial policy and institutional changes

but there remains a large outstanding reform agenda at both the state and federal levels

India has built strong foundations for development The Banks main challenge is to support

far-reaching reforms at both the state and central government levels with high quality and

widely disseminated policy studies and policy

based sector and program loans The five pillars and the fiscal and structural reform triggers

of the 1997 Country Assistance Strategy remain valid Thus only adjustments to accelerate

and assure the full application of those pillars and triggers appear necessary

The World Bank works in close partnership with Indiarsquos Central and State Governments

aligning its strategies with the countryrsquos own development agenda It lays emphasis on

investing in people through better health and education empowering communities to

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 71: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 71

participate in their own development improving the effectiveness of government and

promoting private sector-led growth to achieve the countryrsquos development goals

Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure human

development and improving rural livelihoods The Bank is increasingly focusing on

providing analytical reports on the countryrsquos major development challenges and extending

practical advice to policy makers by sharing good practices and experience from within the

country and abroad

LENDING

Indiais one of the oldest members of the World Bank having joined the institution in 1944

New lending to the country in FY06 (July 2005-June 2006) was US$1416 billion Of this

US$500 million was from the IDA the World

Bankrsquos concessional lending arm and US$916 million from the IBRD At end of June 2006

the Bank group had 56 active projects with a net commitment of about US$ 113 billion

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 72: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 72

TOTAL IBRDIDA COMMITMENTS AS OF END FY06 US$ 113 BILLION

(by fiscal year in nearest US$ billions)

Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06

New 26 22 15 14 29 14

Total 135 130 130 120 128 113

No of Active Projects 76 69 70 63 64 56

KEY DEVELOPMENT INDICATORS

GROWTH (200405-200506 Revised Estimates)

Population16

GDP 84

Agriculture 39

Industry 76

Services 103

Merchandize Exports 23

Poverty(at $1 a day 2000 PPP) 35

Fertility rate 20043 births per woman

Average life expectancy at birth(1998-02) 63 years

Infant mortality (per 1000 live births 2004)62

Maternal Mortality(per 100000 live births 2001)540

ChildMalnutrition (below 5 years 1998) 47

Primary school enrollment net200487

Gap between boysrsquo and girlsrsquo enrollment reduced

Male Adult literacy2000-04734

Female Adult literacy2000-04 478

Access to improved water source200186

Access to improved sanitation facilities 2002 30

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 73: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 73

LENDING BY SECTOR

(As on June 30 2006 in US$ millions)

LENDING BYSTATE

( of total Bank lending to India as on June 30 2006)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 74: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 74

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 75: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 75

MACRO INDICATORS

2001 2002 2003 2004 2005

A Real Expenditure Growth

1 GDP at market prices 52 41 86 69 80

2 Private consumption 56 33 82 85 90

3 Government consumption 30 -24 37 45 60

4 Fixed investment 44 50 125 89 92

5 Exports GNFS 56 219 98 134 124

6 Imports GNFS 34 103 117 250 160

B Contribution to GDP Growth

1 Private consumption 37 21 53 55 59

2 Government consumption 04 -03 04 05 07

3 Fixed investment 10 11 28 20 21

4 Net exports 03 16 -02 -17 -08

C Price Deflators

1 GDP at market prices -05 10 69 31 56

2 Private consumption 10 10 11 12 12

3 Exports GNFS -39 -12 52 34 72

4 Imports GNFS -26 69 108 119 140

D Share of GDP

1 Private consumption 657 654 661 684 701

2 Government consumption 125 120 117 117 118

3 Fixed investment 220 226 235 247 255

4 Change in stocks 04 04 03 03 03

5 Total investment

224

230

238

250

258

6 Exports GNFS

135

155

154

164

173

7 Imports GNFS 142 159 169 215 249

E Memo

1 Nominal GDP (USD billions) 4766 5010 5817 6413 7310

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 76: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 76

2 Population (millions) 10378 10544 10708 10871 11016

3 GDP per capita current USD 4592 4752 5432 5899 6636

4 Real per capita GDP growth 35 25 69 53 66

5 USD Fx rate 477 484 460 453 441

6 Current account balance ( GDP) 03 14 12 -05 -29

7 General government bal ( GDP) -99 -97 -91 -85 -84

THE INDIA AND WORLD BANK PARTNERSHIP

Given the vast development challenges and the modest size of the World Bank Group

programs relative to the population and the economy of India the Bank Group cannot support

India in every effort toward achieving its Tenth Plan goals and the Millennium Development

Goals Instead since 1977 Bank Group strategies have been to engage selectively in India

and primarily at the state levels with knowledge resources and financing geared towards

reform The main thrust of the strategy has been to support the programs of lending reform

states in order to create demonstration effect that might stimulate reforms across other states

or in other sectors of a reforming state The focus of IFC activity has been on investments in

manufacturing financial services and infrastructure

Recent Bank Group programs have been ambitious in their efforts to catalyze and expand

the state reform process in areas that are central to reducing poverty in India- and when

progress in reforms was slower than expected Bank strategy was also well structured to deal

with the slowdown in reform implementation that took place in several states While

concluding that the FY02-04 strategy was broadly appropriate the review points to some

lessons of experience which suggested an evolution of the strategy going forward These

include the need to address growing disparities in state development performance especially

given the importance to the poorest state for achievement of the MDGs the importance of

long-term engagement with state on cross-cutting reform issues

and the disadvantages of concentrating investment lending in states that are recipients of

adjustment lending

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 77: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 77

For the Banks ongoing portfolio Indiarsquos portfolio performance declined in FY03 after five

years sustained improvement in most quality indicators and showed mixed results in FY04

after a number of improvement actions were taken on projects that were either slow

disbursing or closing with large undisbursed balances These actions resulted in an

improvement in disbursement performance but also in an increase in the riskiness rating of

the portfolio The disbursement ratio reached 199 at the end FY04 which is slightly below

the Bank average of 214 and ratios for other large borrowers such as China (22) and

Indonesia (272) The percentage of projects at risk increased to 16 in FY04 compared to

11 in FY03 and the Bank wide average of 16 Many of these projects have clearly not

been ready for implementation at approval and hence suffered one or two years at the outset

in which little was disbursed At current implementation and disbursement rates none of the

ongoing projects in the portfolio can be completed within the 5-year implementation period

which has been the business standard for Bank projects in the South Asia region

The causes of slow disbursement included a weakening of project readiness for

implementation and weakening of follow-up and proactive actions to address slow disbursing

projects The increase in portfolio riskiness rating results from more candid reporting and

proactive portfolio management which is reflected in the end FY04 realism and proactivity

indices of 90 and 83 respectively In order to improve portfolio and support the strategy for

scaling up Bank support to India the Bank and Government of India engaged in ways

To improve portfolio during FY04 and agrees on a Portfolio Improvement Strategy

The Banksrsquo lending volumes have been reduced when states have slowed in their

implementation of fiscal governance and power reforms The slowdown in

Some state reforms reduced Bank financing during FY03 and FY04 the AAA

Program of the Bank was stepped up The country team continued with reforms and provided

non-lending Technical Assistance in UP when further adjustment lending was put on hold as

the states reform process faltered Substantial policy advice and non-lending Technical

Assistance have also been provided in states where adjustment lending has been under

preparation namely AP Karnataka Tamil Nadu and Orissa Important analytical work on the

investment climate and fiscal governance and power sector reforms was also initiated in

states where the Bank had not previously been engaged including Maharashtra Bihar and

Punjab

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 78: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 78

For IFC programs commitments in India grew strongly over CAS period albeit with

considerable variation in response to changing market and regulatory conditions Over the

last two years IFC achieved record commitment in India nearly doubling its portfolio

improving profitability and investing in high impact projects making Indiarsquos IFCrsquos second

largest exposure In FY03 IFC committed a record US$348 million and in FY04

commitments were US$290 million with a concentration in manufacturing as well as

investments in agribusiness power oil and gas finance and health care The expansion was

mainly in long-term debt aided by introduction of local currency lending which is better

suited to sectors such as infrastructure housing finance and health care that do not generate

foreign exchange

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 79: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 79

STRENGTHS

The Bank Group offers a number of strengths

Firstly the Bank Grouprsquos ability to gather and share global knowledge and

experience with Government of India

Secondly the Bank Group has a broad array of tools that it can offer to help

mobilize private financing and foster greater private sector participation in Indiarsquos

development

Thirdly through lending and investment the Bank Group can help catalyze greater

effectiveness and more efficient spending towards ultimate goal of reducing poverty

and encouraging Indiarsquos sustainable development

STRATEGIC PRINCIPLES

To achieve this enhanced impact three strategic principles will underpin the Bank Grouprsquos

work

Focusing on outcomes To ensure all of the work of the Bank Group is explicitly

geared towards supporting Indiarsquos achievement of its development goals The Bank

Group will support achievement of these outcomes with all of its finance and

knowledge resources in India the outcomes will in turn serve as goal posts to measure

the effectiveness of Bank Group support over the medium term timeframe of the

assistance strategy

Selectivity Due to complexity of Indiarsquos development challenges Bank Group

programs will necessarily span a wide range of sectors and types

of inventions Nevertheless selectivity will be applied to target limited resources to activities

where assistance is welcomed and where contributions can also be most effective An

important element of this working closely with major donors and financing partners

remaining in India taking their programs into account and seeking to work together for co-

financing of country-led programs Lending selectivity will also be exercised by choosing

projects in a way that seeks to maximize their impactSelectivity therefore means a greater

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 80: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 80

emphasis on project that either pilotdemonstrate new approaches for possible scaling up

later projects that move from successful pilots to larger scale inventions and projects that

supports expansion of proven government programs on sector-wide basis

Knowledge provider and generator The Bank will also aim to substantially expand

its role as politically realistic knowledge provider and generator To achieve this shift

changes are envisioned on a number of fonts including

(i) Strengthening the Banks capacity to act as a channel of ides and lessons for

international experience

(ii) Placing greater emphasis on understanding the motivation of interest groups and

different stakeholders in the reform process

VOLUME OF LENDING TO INDIA

Given Indiarsquos enormous needs the expansion will primarily be in

(i) Infrastructure (roads transport water supply and sanitation irrigation and urban

development-to underpin both accelerated growth and improved service delivery)

(ii) Human Development (education health social protection-priorities to support

specific MDGs) and

(iii) Rural Livelihoods (with an emphasis on community driven approaches)

Cross-cutting reforms at the state level will also remain an important focus Expansion in

lending for human development and rural livelihoods will depend critically on availability on

IDA resources

These programs will provide increased opportunity for collaboration across the Bank

Group to promote innovative Public-Private Partnership (PPPs) for infrastructure

development-particularly in power and transport The Private Sector Development Strategy

suggests some areas where this collaboration might be developed IFC and MIGA assistance

will encompass activities that fall within the private sectorrsquos role

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 81: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 81

IFC will continue to provide equity and loan financing and guarantees to supplement what

is available from Indian financial institutions or capital

markets and will help to mobilize financing from both domestic and international sources

This will include pioneering investments in infrastructures

And long tenors are required and investments in projects which are constrained by limited

risk appetite of other investors including medium-sized manufacturing countries

agribusiness companies and companies entering new

markets domestically and internationally IFC adds value to projects it invests in by

mobilizing finance from other sources advising on structuring acting as an honest broker

between various project parties and facilitating international partnership particularly with

other developing countries

The Bank Group focuses on adding value through advice on environment and social

sustainability public and corporate governance and the transfer of global knowledge and best

practices

By doing so IFC promotes higher corporate standards of social and environmental

responsibility and the Bank works to improve implementation of environmental and social

frameworks and strengthen the national and state-level frameworks for procurement and

financial management

Additionally Country Financing Parameters which allow increased flexibility in the type

of expenditures that are eligible for Bank financing in India are also being developed

In order to also scale up the impact of the Bank Grouprsquos global knowledge resources in

India the AAA program is being reshaped to focus on

(i) Preparation and dissemination of a limited number of major reports on key issues

in Indiarsquos development

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 82: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 82

(ii) Just-in-time activities primarily in response to Government of Indiarsquos request

Since India has underutilized trust fund and grant programs offered through Bank Group in

the past at the request of Government of India greater effort will be made to enhance the

participation with these programs in the coming strategy period In particular Government of

India and the Bank will seek to

Help strengthen project readiness via upfront analytical work and strengthen implementation

capacity or the capacity of key institution

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 83: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 83

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 84: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 84

CONCLUSION

WORKING AT THE NATIONAL LEVEL

Scaling up will require expanded Bank support at the national level A large part of this

expansion will be in the form of AAA for instance the series of major reports will primarily

assess issues of national consequences Some of

These issues are expected to be the Implication of Indiarsquos Gender Imbalance Employment

Issues the Long-Term Economic Impacts of HIVAIDS Building Indiarsquos Knowledge

Economy Indiarsquos adaptation to climate Change and Disability Issues and Impacts

The increase in overall lending will also involve more national level lending as compared

to recent years The use of new approaches including co-financing with other development

partners under common arrangements for national programs in the areas most critical to

meeting the MDGs Using such approaches the Bank will seek to step up its national level

engagement and work closely with partners that can join the Bank in providing substantial

assistance Such operations are already beginning to materialize with the first being a major

new Sector-Wide Approach (Swap) supporting Government of Indiarsquos national elementary

education program- SarvaShikshaAbhiyan (SSA)

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group

Page 85: 119154269 World Baworld bank NEW Docx

STUDY OF THE FUNCTIONING OF WORLD BANK

TYBMS SEM-V 85

BIBILOGRAPHY

WEBSITES VISITED

wwwworldbankorgin

wwwimfcom

wwwgoogleorg

wwwimforg

OTHER REFERENCES

World Bank Publications - Reference Book

Accountability at the World Bank

World Fact book

World Bank Group Historical Chronology

―Document of The World Bank Memorandum of the President of the IBRD and IFC to

Executive Directors on a Country Assistance Strategy of the World Bank Group