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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

TITLE OF THE PROJECT

Economics and legal analysis of IBRD

SUBJECT

ECONOMICS -II

NAME OF THE FACULTY

Prof. Abhishek Sinha

Name of the Candidate U.UPENDRA

Roll No. 2016112

Semester III
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ACKNOWLEDGEMENT

I would sincerely like to put forward my heartfelt appreciation to our respected professor, Prof.
Abshiek Sinha for giving me a golden opportunity to take up this project . I have tried my best to
collect information about the project in various possible ways to depict clear picture about the
given project topic.
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RESEARCH METHODOLOGY

This project is purely Doctrinal and based on primary and secondary sources such as websites,
books, journals and internet sources. The referencing style followed in this project is BLUE
BOOK 19th Edition's format of citation. This Research process deals with collecting and
analyzing information to answer questions. The Research is purely descriptive in its boundaries
of the topic
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Objective:
The main objectives of the project as stated:

1. To study details about the functions of IBRD. 

2. To study the benefits of IBRD towards ECONOMIC sector.
3. To analysis the role of IBRD in overall development of INDIA

Methodology:

Researcher collects secondary data through various books and also from websites (Internet). 

Secondary Data are those, which have already been collected by someoneelse and which have already

been passed through the statistical process. This data is collected from the following sources. 

 Reports of IBRD
 Magazines
 Journals
 Newspapers
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Introduction to I.B.R.D:

The International Bank for Reconstitution and Development (popularly known as World Bank)
was set up as a result of the decision taken in Bretton Woods Conference New Hampshire.

The conference was held in July 1944 and attended by 44 nations.

There it was decided to set up two organizations i.e., (a) the I.M.F. and (b) the I.B.R.D., to solve
the monetary and financial problems of the less developed countries likely to be faced in Post-
World War II period.

The I.B.R.D. or World Bank was set up on December 27, 1945. When its Articles of Agreement
was signed by 29 members Government in Washington. On 30th June, 1996, 185 countries were
its members. If a country resigns its membership, it is required to pay back all loans with interest
on due dates. If the Bank incurs a financial loss in the year in which a member resigns, it is
required to pay its share of the loss on demand.1

Capital Structure:

The I.B.R.D. was started with an authorized capital of $ 10 billion divided into 1,00,000 shares
of $ 1,00,000 of this $ 9,400 million was actually subscribed. On 30th June 1988 the authorized
Capital Stock of the I.B.R.D. Comprised 7,16,500 authorized Shares of the par value of S.D.R.
(Special Drawing Rights) 1,00,000 each. In July 1994 the total authorized bank capital was $ 185
billion with a capital increase of $ 9.3 billion.

The IBRD is owned and governed by its member states, but has its own executive leadership and
staff which conduct its normal business operations. The Bank's member governments are
shareholders which contribute paid-in capital and have the right to vote on its matters. In addition
to contributions from its member nations, the IBRD acquires most of its capital by borrowing on
international capital markets through bond issues. In 2011, it raised $29 billion USD in capital
from bond issues made in 26 different currencies. The Bank offers a number of financial services
and products, including flexible loans, grants, risk guarantees, financial derivatives, and

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http://www.investopedia.com/terms/i/international-bank-of-reconstruction-and-development.asp
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catastrophic risk financing. It reported lending commitments of $26.7 billion made to 132
projects in 2011.

Principal Purposes or Objectives of the Bank:

The principal purposes as set forth in its Articles of Agreement (or charter) are as follows:

(i) To assist in the reconstruction and development of territories of members by facilitating the
investment of capital for productive purposes, including the restoration of economies destroyed
or disrupted by war, there conversion of productive facilities to peacetime needs and the
encouragement of the development of productive facilities and resources in less developed
countries.

(ii) To promote private foreign investment by means of guarantees or participations in loans and
other investments made by private investors; and when private capital is not available on
reasonable terms, to supplement private investment by providing, on suitable conditions, finance
for productive purposes out of its own capital, funds raised by it and its other resources.

(iii) To promote the long-range balanced growth of international trade and the maintenance of
equilibrium in balances of payments by encouraging international investment for the
development of the productive resources of members, thereby assisting in raising productivity,
the standard of living and conditions of labor in their territories.

(iv) To arrange the loans made or guaranteed by it in relation to international loans through
other channels so that the more useful and urgent projects, large and small alike, will be dealt
with first.

(v) To conduct its operations with due regard to the effect of international investment on
business conditions in the territories of members and, in the immediate postwar years, to assist in
bringing about a smooth transition from a wartime to a peacetime economy.2

The Bank shall be guided in all its decisions by the purposes set forth above

2
http://siteresources.worldbank.org/EXTABOUTUS/Resources/IBRDArticlesOfAgreement_links.pdf
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Principal Activities Performed to Achieve these Purposes:

In order to achieve these purposes, the charter authorizes the World Bank to engage in the
following financing activities:

(i) It may lend funds directly, either from its capital funds or from the funds it borrowed in
private investment markets.

(ii) It may guarantee loans advanced by other or it may participate in such loans.

(iii) Loans may be advanced to member countries directly or any of their political sub-divisions
or to private business or agricultural enterprises in the territories of members.

(iv) It has provided loans to the developing countries for development projects and programmes
because credit rating of many developing countries is poor—hence they feel difficulties in
raising funds in international capital markets.

(v) The World Bank is a vital source to the developing countries, when the member Government
in whose territory the project is located, is not the borrower, the World Bank asks the member
Government for a guarantee.3

Characteristics of Bank Loan:

Some basic provisions of Bank Loan may be mentioned as such:

1. They are meant for high priority productive purposes mainly to develop the infrastructure for
the development such as:

(a) Electric supply,

(b) Power,

(c) Rail,

(d) Roads,

(e) Ports and inland waterways airlines and airports etc.

2. They must be used to meet only the foreign exchange components of the projects.

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https://www.bnamericas.com/company-profile/en/international-bank-for-reconstruction-and-development-ibrd
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3. The interest rate of the bank is somewhat lower in relation to market rate.

4. From July 1, 1982-Bank adopted a policy of resulting its lending rates half-yearly.

Subsidiaries of the World Bank:

There are two subsidiaries of the World Bank. They are:

1. International Development Association (I.D.A.), and

2. International Finance Corporation (I.F.C.)

1. International Development Association (IDA):

This association was set up in 1960. It is an aiding centre for those developing countries who
look up to it for financial assistance. It is an association of donor countries who have come under
the “Aegis” (protection of) of the World Bank. It offers credit to the eligible developing
countries on extremely favourable terms.

The main criteria for the allocation of I.D.A. (International Development Association) credit are
the per capita income of the recipient country. Countries which have an annual per capita Gross
National Product (G.N.P.) of less than $ 681 (in 1989) dollars are eligible for I.D.A. credits.
Other parameters taken into consideration are Country’s credit Worthiness, its accessibility to
commercial borrowing its, economic performance, the density of its population and the existence
of viable projects in the borrowing nations.

I.D.A. interests free credit are available to Governments only and may be obtained on payment
of nominal service charges at 0.75% per annum. The period of repayment of loan is 40 years.
The purposes for which the I.D.A. has advanced the credits are agriculture, rural development
education, energy, industrial development and finance, population and nutrition, transportation
and tourism, telecommunication etc.

India has been the largest beneficiary from I.D.A. Since its inception India’s share is 40% of
I.D.A. Funds. India has not been able to utilise this aid fully, both because of infrastructural
difficulties at home and the adverse conditions imposed by donor countries governing such aid.

Industrial Finance Corporation (IFC):

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This corporation was set up in 1956. It extends credits to private business enterprises. It provides
equity and loan capital for private enterprises in association with private investors and
management, encourages the development of local capital market and stimulates the international
form of private capital.

It supports joint ventures which provide opportunities to combine domestic knowledge of market
and other conditions with the technical and managerial experience available in the industrial
nations. The corporation has about 200 members. Its paid up capital is about 544 million dollar
and its retained earing were 205 million dollars.

The project, for which the corporation advances assistance, must satisfy the following
conditions:

(i) It should have the prospects of earning profits,

(ii) It should boost the economy of the best country,

(iii) Local investors should be able to participate in the project in the beginning of the project or
later,

(iv) The required funds for the project are not available from private investors at reasonable
terms,

(v) The management should be capable and experienced,

(vi) The sponsor of the project has a substantial holding in the enterprise.

India is the topmost borrower of I.D.A. Loans. The prospects of getting larger funds from the
World Bank seem to be bleak because of constraints on resources. The situation is not much
better as regards I.D.A. Loans because of the failure of the U.S.A. to provide funds for its
replenishment.

Other Helps Extends By I.B.R.D.:4

Various other helps have been provided by the World Bank and they are as follows:

1. The I.B.R.D. helps in providing training, technical assistance, inter-organizational co-

operation, research and studies and in the settlement of investment disputes of its members.
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www.whirledbank.org/ida_ibrd.html
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2. The Bank has established a Staff College, known as the Economic Development Institute
(E.D.I.) for training senior officials of the member developing countries. It helps to improve the
management of their economies and to increase the efficiency of their investment programmes.

3. It provides technical assistance to the needy country under two categories: (a) engineering
related such as engineering design and construction supervision, and (b) Institution related such
as diagnostic policy and institutional studies, management support and training.

4. The bank also extends inter-organisational Co-operational. Co-operation between the I.B.R.D.
and other international organisation like the F.A.O.; the W.H.O.; the G.A.T.T.; the United
Nations Environment Programme (U.N.E.P), the U.N.D.P., the United Nations Industrial
Development Organisation (U.N.I.D.O.) the Industrial Fund for Agricultural Development
(I.F.A.D.) etc.

5. Centre for Settlement of Investment Disputes: The bank has established the International
Centre of Settlement of Investment Disputes (I.C.S.I.D.) between States and Nationals of other
states. All members of the Bank have signed over the paper. The Bank in this has successfully
mediated in solving many international investment disputes such as the River Water Dispute
between India and Pakistan and of the Suez Canal between Egypt and the U.K.

In the end we can say that the Bank’s overall performance must be judged not on its lending but
on its success in providing advice and technical assistance. The Bank is laying greater emphasis
on developing human resources health and nutrition and on environment.5

Governance

The IBRD is governed by the World Bank's Board of Governors which meets annually and
consists of one governor per member country (most often the country's finance minister or
treasury secretary). The Board of Governors delegates most of its authority over daily matters
such as lending and operations to the Board of Directors. The Board of Directors consists of 25
executive directors and is chaired by the President of the World Bank Group. The executive
directors collectively represent all 189 member states of the World Bank. The president oversees
the IBRD's overall direction and daily operations. As of July 2012, Jim Yong Kim serves as the
5
https://www.moodys.com/credit-ratings/IBRD-World-Bank-credit-rating-410525
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President of the World Bank Group. The Bank and IDA operate with a staff of approximately
10,000 employees.

Membership

All countries which are members of IMF are members of World Bank. A country holding the
membership of bank must subscribe to the charter of the bank. If a country resigns its
membership, it is required to pay back all loans granted to it through interest on due date. Each
member of the World Bank has a capital subscription which is similar to but not identical with its
quota in the fund. The member’s subscription also measures roughly its voting power, but again
the smaller nations have a slightly higher vote.

President

The president of the Bank, elected by the executive directors, is also their chairman, although he
is not entitled to a vote, except in case of an equal division. Subject to their general direction, the
president is responsible for the conduct of the ordinary business of the Bank. Action on Bank
loans is initiated by the president and the staff of the Bank. The amount, terms, and conditions of
a loan are recommended by the president to the executive directors, and the loan is made if his
recommendation is approved by them.

Board of Governors

All powers of the Bank are vested in its Board of Governors, composed of one governor and one
alternate from each member state. Ministers of Finance, central bank presidents, or persons of
comparable status usually represent member states on the Bank's Board of Governors. The board
meets annually. The Bank is organized somewhat like a corporation. According to an agreed-
upon formula, member countries subscribe to shares of the Bank's capital stock. Each governor is
entitled to cast 250 votes plus 1 vote for each share of capital stock subscribed by his country. 
The Executive Directors make up the Boards of Directors of the World Bank. They normally
meet at least twice a week to oversee the Bank's business, including approval of loans and
guarantees, new policies, the administrative budget, country assistance strategies and borrowing
and financial decisions. 6
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https://www.slideshare.net/lbijarnia/ibrd
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IBRD helps members achieve results by delivering financial products, knowledge and technical
services and strategic advice, while using its capacity to call members together to discuss ways to
further their specific development objectives. It strives to increase its impact in middle-income
countries by working closely with the

International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency
(MIGA); capitalizing on middle-income countries' own accumulated knowledge and
development experiences; working closely with the International Monetary Fund (IMF) and
other multilateral development banks; and collaborating with foundations, civil society partners
and donors in the development community.

Assistance in the Reconstruction and Development of Member Countries

The idea of loans for reconstruction applied to countries, especially in Western Europe, that had
suffered war damage, while the idea of loans for development applied to countries in the
underdeveloped category.2 These reconstruction loans were found to be an important supplement
to the resources of the borrowing countries and helped restore their economies at the pre-war
level of production.3 It was apparent from the' very outset that the Bank was ill prepared to cope
with them. The Bank's resources were too limited and the scheduled lending procedure was
inappropriate for the task at hand. Consequently, alternate arrangements were made to deal with
the reconstruction problem. The most important of these was Marshall Plan initiated by the
United States which extended a huge 40 amount.-of money for reconstruction. The Bank became
an institution concerned solely with long-term lending for development pirposes after 1948.
Since then its lending has been mainly for the developed countries. During the 1950s, Bank
lending concentrated on economic infrastructure such an electric power, telecommunications,
transportation, irrigation and flood control, etc. As newly independent countries joined the Bank,
rapid rates of population growth put increase in pressure on the basic resources of the world. By
the early 1960s the requirements of such sectors as agricutlure, education and industrialization
were recognized by the Bank to be crucial to social and economic progress. In addition, technical
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assistance was essential for the supplementation of financial assistance. Consequently, greater
emphasis began to be laid on technical assistance to help developing countries in formulating
effective policies for their development, identifying and preparing projects and establishing
appropriate development institutions. In 1968, the Bank launched its first Five-Year Plan (1969-
73) to provide considerable expansion and diversification of its activities, and enable the
institution to determine the place of particular projects in the development process. Since then
special efforts have been made to assist the poorest and "least developed" member countries.
During the plan period, the Bank lending more than doubled as compared with the previous
fiscal five years. At the same time steps were taken to improve the qualitative impact of the
activities of the Bank. In addition to lending in the traditional sectors, the Bank operations
greatly increased in the areas of agriculture and education, and more attention was paid to the
social aspects of education, and greatly increased in the areas of agriculture and education, and
its impact on the environment.4 Recognizing the rapidly aggravating urban conditions in
developing countries, the pattern of lending for urbanization projects was changed from
infrastructure to introducing new concepts for relieving urban pressures. The Bank has also
started making direct loans for tourism projects. Now the development involves people. The
more comprehensive view of the development process by the Bank has led to an increasingly
approach to lending by in comporting into a variety of projects, a variety of activities which
embrace many subsectors and often cut across sectorial lines. At the same time, the Bank is
concerned that the benefits of its assistance should be distributed more widely, especially among
the poorer sections of a country's population. The Bank endeavors to be innovative and flexible
in its approach towards finding solutions when dealing with the special 42 requirements of a
people to be assisted. In the final analysis, development can have no meaning unless it brings a
better, fuller and more productive life to mass of the under-privileged in poor countries. One can
observe that the past and present pattern of the Bank lending and its policies have contributed a
lot to the economic development of underdeveloped countries. Really speaking, it has been
instrumental in increasing the economic growth of underdeveloped and developing economies.

IBRD has three main business lines:

1. Strategy and coordination services

2. Financial services
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3. Knowledge services comprising:

(a) Poverty assessments

(b) Social and Structural Reviews

(c) Public Expenditure Reviews

(d) Sector Reports

(e) Country Economic Memoranda

(f) Knowledge Sharing

The Sources of Finance

IBRD raises most of its funds on the world's financial markets65. It has become one of the most
established borrowers since issuing its first bond in 1947 to finance the reconstruction of Europe
after World War Two. Investors see IBRD bonds as a safe and profitable place to put their
money and their cash finances projects in middleincomecountries66. IBRD became a major
player on the international capital markets by developing modern debt products, opening new
markets for debt issuance, and by building up a broad investor base around the world of pension
funds, insurance companies, central banks, and individuals.

Economists View over the Working of the I.B.R.D.:

Economists are of this view that the Bank has been quite successful in achieving the principal
objective of reconstruction and developing. No doubt it has helped in the reconstitution of
Europe after the destruction in the Second World War. But some economists are not lacking in
saying that its lending policies are not proper and satisfactory.

Further they have written that:

1. The Bank charges a very high rate of interest on loans as also an annual commitment charge
on undistributed balance.

2. Further they have said that it has failed to meet the financial needs of the developing countries
fully. Its loan has just touches the fringes of the total capital requirements for their economic and
social uplift.
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3. The lending procedure of the bank is faulty because it lays emphasis on the repaying capacity
of the borrowing country before granting any loan. Such a condition is not proper rather it is
harsh and discriminatory for developing countries which are mostly poor and need financial help
on a large scale.

4. The Bank has also been criticised for being discriminatory in its purpose-wise and region-wise
assistance to its members.7

India and the World Bank:

As we are aware that India is one of the founder members of the Bank and has occupied a
permanent seat on its Board of Executive Directors for a number of years.

Therefore, India is very much attached and is in link with the bank and has received many
benefits which are as follows:

1. The Bank has extended assistance to India in its planned economic development by granting
loans, conducting field surveys, rendering expert advice and training Indian personnel at the
E.D.I. (Economic Development Institute).

2. The Bank has established a Chief of Mission of the Bank at New Delhi, who monitors the
aided projects in India.

3. It is said that India has been the largest receiver of the World Bank assistance.

4. The Bank also helped India to solve amicably its river water dispute with Pakistan.

In the end it can be said that India has gained much for being the member of the World Bank for
the development of agriculture, industry, energy and transport. In future India, will have to
borrow more from the Bank.

Project in India

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Uttarakhand Disaster Recovery Project India, Bihar Integrated Social Protection Strengthening
Project India, Rural Water Supply and Sanitation Project for Low Income States, Rajasthan
Road Sector Modernization Project, National Highways Interconnectivity Improvement Project
Improving Development Programmes in Tribal Areas, Tamil Nadu and Puducherry Coastal
Disaster Risk Reduction Project, India Low-Income Housing Finance National AIDS Control
Support Project, Himachal Pradesh Watershed Management Project Integrated Child
Development Systems (ICDS) Strengthening & Nutrition Improvement Program (ISSNIP)
Development Policy Loan (DPL) to Promote Inclusive Green Growth and Sustainable
Development in Himachal Pradesh.

The World Bank operates by providing loans in two different ways.

First, investment loans are granted for projects that will produce goods or services or public
works to help economic and social development.

Second, adjustment loans are granted for programs to support reforms to government policies.

Like IMF loans, World Bank loans are conditioned on the World Bank’s approval of the
investment plans and schedule for the project and repayment of the loans. The World Bank funds
its loans by raising money on the international bond market, issuing bonds in its name to large
institutional international investors, such as banks and pension funds.

As a non-profit institution, however, the World Bank does not take any profit on the results of its
fundraising. Instead, it uses its profits to subsidize its lending back to the countries whose
projects its finances. Only about half of the World Bank’s funding comes from grants by
members, and the rest comes from the World Bank’s own operations.

Examples of the programs the World Bank funds include:

In Bangladesh, the World Bank provided a $59.8 million credit to provide medical services and
nutritional supplements to children and their mothers.

In Bosnia, the World Bank helps offer ” microcredit” loans, typically less than $1,000, to
individuals who wish to start small businesses and otherwise would not have access to bank
credit.
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In Peru, the World Bank helped finance the Peru Rural Roads Program, which increased the
connection of rural areas to each other and to urban centers as a way to increase economic
activity.

In Brazil, the World Bank has provided funds to the government to run the Rain Forest Pilot
Program to reduce deforestation in the state of Mato Grasso.

In China, the World Bank supported the Chinese government’s National Iodine Deficiency
Elimination Program by providing aid for upgrading physical plants for iodized salt production,
packaging, and distribution, by establishing effective quality control in the salt industry, and
funding the training of laboratory staff and the improvement of laboratory facilities.

In Cote d’Ivoire the World Bank has financed an ‘emergency urban infrastructural project’
intending to improve access to and quality of facilities and services in Abidjan and other select
cities. This project will support some of the country’s poorest communities.8

The Critique

The Bank claims to be universal but still some rich socialist countries are not the members of the
Bank. The absence from the Bank of the Soviet Union, the Eastern European States, and the
predominant position of the United States and of other rich capitalist countries in it, have given
rise to misgivings about the Bank in a number of important colored low income countries.16
These misigivies impede the creation and maintenance of feeling of mutual confidence between
the Bank and its low-income members that is essential to the full success of the Bank's
operations. The universalization of the Bank's membership would provide the Bank with
opportunities to avoid these misgivings, and these opportunities should be fully exploited.17 This
step of the Bank will certainly increase the entire international aid effort. It is suggested that in
order to become a truly international institution and shed off its image of a Western Club, the
World Bank must aim at universality of a membership, both among its potential contributors and
among its recipients.18 Some of the original rules of the Bank which make it difficult for new
members to join the Bank may therefore, have to be changes

8
https://www.britannica.com/.../International-Bank-for-Reconstruction-and-Developme.
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Conclusion

FUTURE ROLE OF THE BANK

The increase in the Bank's resources to permit lending to rise in real terms should be considered
in the background of significant changes in the size, regional distribution, sectorial composition,
and character of the Bank's operational changes which reflect recent thinking within the
international community on development priorities. Changes in the regional distribution and
sectorial composition do not revel fully the reorientation more responsive to the development
objectives of member countries. This can be illustrated at the level of general development
strategy as well as specific project design. The benefits of growth cannot be assumed to "trickel
down" automatically, but to ensure that development really benefits the Third World people,
growth must deliberately be directed to the poorest. The focus should be diverted to identify the
poorest sections of society and improving their productivity and income levels directly. As again
this background the future role of the World Bank should be examined.