How does the World Bank work?

ON APRIL 5th the World Bank appointed a new boss: David Malpass, a former economic adviser to President Donald Trump and senior official in the Treasury Department. The bank, as always, accepted America’s nominee for its top post. And this time, it had no choice: the institution’s other members were not prepared to sponsor a rival candidate. In his previous role, Mr Malpass made it clear he is not a fan of everything the bank does. But what does it do, exactly?

Its stated mission is to fight poverty and inequality by offering money and advice to developing countries. It was conceived in 1944 at the same conference in Bretton Woods, New Hampshire, that invented the International Monetary Fund. Whereas the fund is supposed to tackle acute crises—currency misalignments, capital flight and sudden shortages of dollars—the bank is charged with tackling chronic long-run problems of deprivation and backwardness. A big part of its original mission was to help rebuild Europe’s war-blasted infrastructure: its first loan was to France. But developing countries soon came knocking too. Chile asked for help a few months after the bank opened its doors in 1946.

Today the bank is comproised of five organisations, including an agency that guarantees loans, a centre that settles investment disputes, a “corporation” that invests in private firms and promotes entrepreneurship, and the two biggest units which together constitute the World Bank proper: the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD). IDA is the simpler of the two institutions. It collects donations every three years from the bank’s richer nations and gives the money to the world’s poorest countries, in the form of zero-interest loans or outright “grants” that need not be repaid. It recently gave $90m to Benin, for example, to help reduce the country’s fertility rate by providing contraception and education to young women. In the last fiscal year, IDA doled out $24bn, of which 36% went to its three biggest beneficiaries: Ethiopia, Bangladesh and Nigeria. Countries with a GDP per person over $1,145 are supposed to “graduate” out of receiving IDA’s assistance. China took its last IDA money in 1999; India in 2014.

The IBRD is more controversial. Because it has the backing of the world’s governments, it can borrow money cheaply on the international financial markets. It then lends that money a little less cheaply to “middle-income” countries, including Brazil and China. The bank’s critics have pointed out that many of these governments can now borrow in abundance from foreign investors themselves, without the bank stepping in. The IBRD’s supporters, however, argue that the bank’s lending gives it skin in the game and a more receptive audience for its policy advice, which is how it really makes a difference. One of IBRD’s critics is Mr Malpass. He wants the bank to focus more tightly on promoting economic growth and to lend less to its richer borrowers, especially China. What does the World Bank do? Too much, according to the man who now leads it.

Explore our A to Z of economics