In July 1944, the UN convened a conference in Bretton Woods, New Hampshire, to discuss economic cooperation after the war. Concerns over monetary stability were most pressing, and thus the IMF was established at the conference. Postwar reconstruction and economic development issues were also addressed, which gave birth to the World Bank. In December 1945, the first members signed its charter, and in 1946 the organization began its lending operations with a loan of $250 million for French postwar reconstruction. After the initial postwar reconstruction period in Europe, the second task of the World Bank, economic development, became most prominent. The World Bank used its status as a first-class debtor to pass on low-interest loan rates on funds raised on international capital markets to project countries. Among these nations were newly independent states in Africa and Asia.
Among the first World Bank signatories were Poland and Czechoslovakia. In 1950, however, the Soviets forced them to withdraw, as they considered the World Bank an instrument of U.S. economic imperialism. Since then, World Bank members have consisted largely of nations with market-oriented economies. Japan and the Federal Republic of Germany (FRG, West Germany) became members in 1952 and later were among the biggest donors of soft loans. The World Bank Charter specifically prohibits the body from interfering in the political affairs of states receiving World Bank aid and holds that only economic considerations will be used to determine need. Nevertheless, because the seat of Bretton Woods institutions (the World Bank and the IMF) was in Washington, D.C., and the World Bank maintained close relations with American-based banking institutions, politics did come into play over the years. The United States has remained the most influential World Bank member, and the president of the World Bank has always been an American.
Because the establishment of credibility in capital markets was based on World Bank recipient nations' ability to repay loans, in the first fifteen years of its existence the body focused on lending not to the poorest countries, which posed too high a risk of default, but rather to middle- or upper-middle-income countries, such as those in Latin America. This policy, however, did little to alleviate poverty. It also became problematic in terms of Cold War geopolitics. Poverty presented itself as a powerful precondition for successful communist or nationalist movements throughout the developing world. In recognition of this, in 1960 the International Development Association (IDA) was created as part of the World Bank. The aim of the IDA was to make concessional loans to the world's poorest nations, funded by contributions of member states. The two largest contributors were the United States and Japan.
During 1962–1968, under the leadership of President George Woods, the World Bank broadened its conception of economic development, which had been formerly restricted to large high-tech projects such as highways or power plants. Because earnings from these initial projects allowed increased funding, the World Bank's new lending policy included longer repayment periods, involved technical and direct assistance, and provided loans for agricultural purposes, which became a major focus of World Bank priorities. During 1968–1981, Robert McNamara, a former Ford Motor Company chief executive officer (CEO) and secretary of defense under Presidents John F. Kennedy and Lyndon B. Johnson, served as the World Bank's president and profoundly changed the institution. During McNamara's tenure, the World Bank became involved foremost in poverty mitigation programs and increased its lending operations from $1 billion in 1968 to more than $12 billion in 1981. He also had to cope with the 1971 breakdown of the international monetary system designed at Bretton Woods, the oil price shocks of 1973–1974 and 1979–1980, and the developing world debt crisis. The first oil price shock led to the emergence of the so-called petrodollar market of Organization of Petroleum Exporting Companies (OPEC) countries. Some of these funds were borrowed by the World Bank to finance development projects, especially rural development projects in Africa. Unfortunately, the expansion of lending did not always contribute to the reduction of poverty but, on the contrary, locked many states into a vicious cycle of higher and higher debt with no ability to pay the debt or accruing interest.
Because the World Bank raises its funds from international capital markets, it is largely independent of interventions by member governments. During the 1960s and early 1970s particularly, the World Bank witnessed active intervention by the United States to prevent lending to the Democratic Republic of Vietnam (DRV, North Vietnam) and other U.S. adversaries. This obviously politicized the World Bank. Due to successful World Bank–sponsored development projects in East Asia and Latin America, the 1980s witnessed the emergence of a consensus view of economic development based on free markets. World perception of the East Asian miracle in nations such as the Republic of Korea (ROK, South Korea), Taiwan, and Singapore was largely based on a seminal book published by the World Bank in 1993. The end of the Cold War brought a host of nations clamoring to join the World Bank, many of them in former communist bloc areas. Today, the World Bank focuses on creating sustainable economic growth by combating corruption in recipient nations and by ameliorating the situation of the poorest, most heavily indebted countries with poor growth records.
Bernhard Johannes Seliger
Kraske, Jochen, with William H. Becker, William Diamond, and Louis Galambos. Bankers with a Mission: The Presidents of the World Bank, 1946–91. New York: Oxford University Press for the World Bank, 1996.; Salda, Anne C. M. Historical Dictionary of the World Bank. Lanham, MD: Scarecrow, 1997.; Staples, Amy L. S. The Birth of Development: How the World Bank, Food and Agriculture Organization, and World Health Organization Have Changed the World, 1945–1965. Kent, OH: Ken State University Press, 2005.; World Bank. The East Asian Miracle, Economic Growth and Public Policy. Oxford: Oxford University Press, 1993.