World Bank is international financial institution that provides loans to developing countries. The main purpose of the institution is the reduction of poverty worldwide. World Bank set 8 goals to achieve by 2015 but only 2 targets were reached with substantial doubts remaining. World Bank programs and policies favor economies of developing countries. However, through illusion of expected development and prosperity it might be seen as though such serious issues as enormous debts, conflicts of interests, obvious ignoring and indifference towards opportunities and constraints of economies. As a result, World Bank’s inefficient activity caused a great wave of criticism.
Perhaps, primary issue of efficiency is underlined in unfair governance. World Bank is run by 184 countries through Board of Governors and Board of Directors. Governors delegate their power to executives except of that mentioned in the Articles of Agreement. Executives represent Board of Directors which consists of a President and 25 members, 20 of which are elected and 5 appointed. Overwhelming majority of countries is represented by only 20 executives. It is worth noticing that the other 5 appointed directors are those with the highest economical power and have distinctive voting rights. The weighted voting system classifies countries by their economies enabling the biggest shareholders to dominate in decision making. Titus Alexander compares this system’s unfairness to apartheid in the South African Development Bank, assuming that unequal voting power of developed western countries leads to global apartheid.
At the present time, each new member in Board of Directors has 250 votes plus one vote for each share owned in Bank stock. Obviously, the biggest shareholders; US, UK, France, Japan and Germany have substantial voting rights in vital decisions as providing funds, choosing leadership and senior management.
The role of the US is substantial. As the biggest shareholder the US hold 15.85% of voting rights plus has veto status that enables to prevent Bank decisions against its interests. Practically, this kind of nominee promotes outrage in the form of cronyism. It can be approved by the fact that US proposed candidates have been unreservedly accepted by Board of Directors (FORBES.com). The most recent president Jim Yong Kim was elected in 2012 instead of Ngozi Okonjo-Iweala who was exceptionally qualified and experienced in working with developing countries (The Economist, 2012).
It can be suggested that influential position of US and other G7 countries in the Board of Directors all in all determines the core strategy of World Bank. This was basically accepted by Washington consensus financial strategies such as free trade, floating exchange rates, macroeconomic stability and free markets have been widely used in Latin America and South East Asia. Despite this expected success Washington Consensus programs failed. I can suggest two main reasons of failure:
1. Theoretically, financial institutions provide financial advices and services if there is a demand for them. In practice, they intervene, intruding their policies and strategies. It basically occurs if the borrower defaults on debts which have been provided by World Bank before. The US Foreign Relations Committee accused World Bank since they had focused on providing loans to developing countries rather than targeting development of those countries.
2. Policies implemented in developing countries are frequently irrelevant for their economies and, hence, are harmful. As an opponent of Bretton Woods System, Henry Hazlitt argued that World Bank with its monetary policy promotes inflation. Moreover, he mentioned that World Bank strategies lead to state-domination in international trading which is threatening to private sector growth. According to Joseph Stiglitz, the former Chief Executive in World Bank, the majority of poor countries had not been ready for free-market policies that were implemented too quickly ("Shock Therapy") or in uncompetitive markets. Stiglitz strictly criticizes that World Bank recommends inflation targeting while necessary indices as financial incomes and financial markets are ignored. Considering Thailand crisis of 1997, he also claimed that austerity measures did not lead to positive results worsening the situation in the region.
World Bank is a financial institution. Hence,it lends money and provides financial advices. However, the mission of this organization is to reduce poverty and inequality between developing and developed countries. Is it worth separating actual purposes and missions? It is NOT only if there is no place for abuse.
World Bank can be a bridge.
But if the bridge is breaching really, it IS worth thinking about the consequences.
