Topic Introduction

In the wake of the Second World War many of the Eastern European nations were devastated by the bombing and occupation that occurred during the war years. Prior to the end of the war, the Allied powers sought to create peace in the international community and started talks for the recreation of a stronger, more widespread League of Nations. The creation of the United Nations also resulted in the creation of the International Monetary Fund (IMF) and World Bank, both of which have a significant amount of autonomy from the United Nations, and deal with financing, lending, and development. While the understanding of the IMF and World Bank today are more in line with poverty reduction, the initial creation of the institutions were due to the “two serious problems [facing] policymakers in the last stages of the Second World War. First, Europe had been devastated by war and needed to be reconstructed. Second, the ‘beggar thy neighbor’ economic policies of the interwar years had led to disastrous outcomes” (Woods, 1996). Although the second problem was mostly contained within developing nations, the failure of economic policies left a void for loans and guidance that needed to be filled in order to avoid a larger collapse of civil society. It was under these circumstances that the first economically focused international organizations of the IMF and World Bank came into existence.

The focus of the World Bank on reconstruction of industrialized nations shaped how the World Bank went about loaning money: with definite projects in mind. Most of the original World Bank assistance was in rebuilding infrastructure such as roads, railway, bridges, and public utilities. During the first decade, approximately three-quarters of the funds were spent on public utilities (Lewis and Kapur 1973). Although the original intention of the World Bank was funding for a project-approach to lending and the reconstruction of war torn Europe, the introduction of the Marshall Plan in 1947, quickly changed the role of the World Bank, resulting in a “loan portfolio dominated by power and transportation projects, which came to account for 78 percent of lending to poorer countries by the end of the 1950s” (Woods, 2006). This shift from redevelopment of industrialized nations to assisting developing nations with the industrialization process occurred at the end of the 1940’s with the implementations of the Marshall Plan and the Anglo-American Loan Agreement in Western Europe. This change of view and location did not influences the internal structure and regulations of the World Bank, and thus the types of projects it funded did not change drastically until later in the century, ensuring that its loans to the borrowing parties had conditions to ensure development programs and public overhead capital.

Institutionally the World Bank also encompasses two other organizations, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). While the IDA focuses its loans and assistance on reducing poverty the poorest nations, the IBRD “aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory service” (World Bank 2009: IRBD). While both the IDA and IRBD provide development assistance, the IDA tends to promote smaller scale, social development programs whereas the IRBD tends to do more project assistance for nations. World Bank funding for social programs is about 41% of the total budget, with the breakdown as follows: 8% for education, 11% health and other social services, and 22% to law and justice, and public administration. (World Bank 2009: Our Focus)