What is the World Bank?
The bank was created in 1944 along with its sister organisation, the International Monetary Fund, at the Bretton Woods conference in New Hampshire. The IMF was given responsibility for ensuring stability of international financial markets. The World Bank, or the International Bank for Reconstruction and Development as it is called officially, was initially given the role of helping in the reconstruction of Europe. France received the first bank loan in 1947. The bank, headquartered in Washington, subsequently moved into lending for developing countries with its affiliate, the International Development Association, which provides "soft loans", ie, loans at zero or low interest rates.
How much money does the bank lend?
Lending commitments from the World Bank and the IDA amounted to $23.6bn (£11.9bn) in 2006. The top three regions for bank loans were Latin America and the Caribbean (25%), Africa (20%) and South Asia 16%.
What does the money go on?
Most funding - 75% to 80% - goes on what the bank calls investment or what used to be called project lending. In the early days this meant loans for physical infrastructure such as roads and dams. When he became president of the World Bank in 1967, Robert McNamara, the hugely influential US secretary of defence during the Vietnam war, was particularly keen to push money out of the door. During his 13 years, Mr McNamara transformed a sleepy institution as lending increased 13-fold. It eventually dawned on the bank that huge increases in lending did not necessarily translate into poverty reduction, even if the high lending figures made the bank look impressive.
Did things change after McNamara?
After McNamara, the bank put increased emphasis on the quality of its loans rather than the amount of money it lent. It began to take into account other factors, such as the environmental impact of projects. Big dams, such as the Narmada project in India, fell out of favour. With its wider focus, the bank now, for example, promotes the education of girls and provides training in sustainable forestry and farming. The rest of the bank's lending goes on structural reforms. Particularly controversial, this used to be called structural adjustment lending. Now it is called development policy lending.
Why is structural reform lending controversial?
During the 1980s, both the IMF and the World Bank adopted the "Washington consensus" on economic policy, founded on the belief that free markets, privatisation and minimum government interference in the economy was the best way to achieve development. Loans were given to countries that accepted this approach, giving rise to accusations that the IMF and the bank were foisting neo-liberal economic policies on to poor countries. The Washington consensus fell out of favour when countries such as China and Botswana showed that strong economic development did not depend on following the IMF/World Bank model. But even critics of the bank, such as Joseph Stiglitz - a former chief economist at the bank, say it is more open to outside criticism and flexible than the more secretive IMF. Despite the growth in private lending, the bank's defenders say it still has a role to play in important sectors such as health and education, not normally of interest to private lending.
Who controls the World Bank?
The president of the bank is in charge of all daily operations, but ultimate responsibility for the 185 member countries rests with the bank's board of 24 executive directors. Votes on the board match the amount of money each country contributes to the bank's kitty. As of November 2006, the US held 16.4% of total votes, Japan 7.9%, Germany 4.5%, and the UK and France each held 4.3%. Major decisions require an 85% majority, so the US effectively holds power of veto.
Why is the bank president always chosen by the US?
This is a tradition that dates back to the creation of the bank. All 10 presidents have been chosen by the US because it is the bank's biggest shareholder. The flipside to this arrangement is that the managing director of the IMF is always a European, currently Rodrigo de Rato from Spain. Bank critics dislike this cosy arrangement dictated by the big powers. ActionAid, the UK aid group and others, argue that the process should be much more open and transparent and not subject to backroom dealing among the big powers. The other criticism is that such an arrangement opens the bank and IMF up to accusations of hypocrisy, as they always preach the importance of good governance and transparency.
How will the Wolfowitz controversy affect the future of the Bank?
Mr Wolfowitz, who was never popular with bank staff in the first place because of his key role in the Iraq war, was found by a bank panel to have breached conflict of interest rules. The ad hoc panel said he should not have been involved in a pay-and-promotion deal for his girlfriend Shaha Riza, when she was seconded to the US state department. The row will only reinforce calls for a more open selection process. Mr Wolfowitz will be the first bank president to be forced out in such ignominious circumstances, but it is hard to see a break in the tradition that dictates that the head of the bank should be America's choice.
