CSS & PMS Solved Essays | World Bank in the 21st Century: Obligations and Limitations
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Outline
1-Introduction
- ✓The World Bank (WB), an international financial institution, rejuvenates the economic growth of its members by providing loans and grants to them.
- ✓Undoubtedly, the 21st century is the age of digitization and interconnectedness; consequently, the WB has tailored its strategies to promote sustainable development worldwide.
- ✓The mission of the WB is to end extreme poverty in the world and boost sustainable development on a livable planet.
- ✓The WB has obligations to fulfil, such as curbing poverty and reconstructing member states. Moreover, it also has certain limitations, namely inadequate representation of developing states and flawed conditions with loans.
- ✓However, the aforementioned shortfalls can be overcome by adopting efficacious measures, such as voting reforms and extending flexible loans to debt-led economies.
2-The World Bank (WB) and its evolution
3-The World Bank in the twenty-first century
4-Obligations of the World Bank
- ✓Reducing poverty
- Evidence: To the World Bank Report, 2021, “The Rural Migrant Skills Development and Employment Project has provided skills training to around 522,000 young people and provided employment services to over 4.2 million job seekers in China.”
- ✓Reconstructing member countries
- Evidence: In the Peruvian Sierra, the World Bank project has delivered irrigation service to 18,700 farmers across 14,700 hectares, significantly increasing the yields of key crops.
- ✓Bringing foreign investments
- Evidence: The WB has reformed India’s automotive, solar power manufacturing, and IT-related services sectors, creating a pipeline of around $2 billion in FDI.
- ✓Reforming the war-torn economies
- Evidence: According to the World Bank Report, 2023, “Since 2022, around $38 billion has been mobilized from the World Bank and partners for war-stricken Ukraine.”
- ✓Facilitating international trade
- Evidence: The World Bank launched the Trade Facilitation Support Program (TFSP) in 2014 to support countries that seek assistance to improve their cross-border trade environments.
5-Limitations of the World Bank
- ✓Under-representation of developing states
- Evidence: According to the Bretton Woods Project 2019 report, “The leading G7 countries typically make decisions in the World Bank because they are the largest donors.”
- ✓Geopolitical considerations
- Evidence: After Russia invaded Ukraine in 2022, the WB cut ties with Russia and its ally Belarus, pausing all programs in the two states.
- ✓Weak accountability
- Evidence: The construction of the Pak Mun dam in Thailand has destroyed the fisheries of the Mun River, impoverishing thousands of people who had made fishing their livelihood.
- ✓Forced displacement
- Evidence: The Bank’s Protection of Basic Services (PBS) program for Ethiopia has undeniably led to the forced displacement of perhaps 1.5 million people.
- ✓Structural adjustment loans
- Evidence: According to the research article “The World Bank and India” by the Public Interest Research Group, “India has reported to have changed 20 pieces of major legislation for seeking the WB’s loan.”
6-Recommendations for the World Bank to overcome the limitations
- ✓To bring voting reforms into the WB’s structure
- ✓To align all the operations with the Paris Agreement
- ✓To extend loans with flexible conditions for debt-led economies
7-Conclusion
The World Bank is crucial in global development, financial assistance, and sustainable growth. As an international financial institution affiliated with the United Nations (UN), it provides loans and grants to its member countries to boost their economic development. One of its top priorities is to achieve a “Water-Secure World for All,” reflecting its commitment to promoting inclusive and sustainable development. In today’s digital age, the World Bank (WB) has adapted its strategies accordingly to ensure its member states are equipped for success. As the 21st century is the age of digitization and interconnectedness, the World Bank has adapted its policies to address the challenges of the present day. Its obligations include reducing poverty, rebuilding member states, restructuring war and calamity-stricken economies, and promoting international trade. However, the organization faces several limitations, including the under-representation of developing countries, geopolitical rivalries, and weak accountability. These limitations have hindered the World Bank’s ability to achieve its goals. Therefore, the organization must implement new policies, such as voting reforms, which can overcome these challenges and meet the demands of the present day. By doing so, the World Bank can continue to lead the way in global development, helping its member states rebuild, reduce poverty, and increase international trade.
Considering the beginning of the World Bank (originally named the International Bank for Reconstruction and Development (IBRD), it was established at the Bretton Woods Conference in 1944. Its initial aim was to provide much-needed financial assistance for rebuilding the Western European countries devastated by the World War II. Therefore, it extended its first loan to France in 1947, followed by the Netherlands, Denmark, and Luxembourg. Soon after the success of its mission, within a few years, the WB gradually evolved from a single entity to a collection of five interconnected organizations known as the World Bank, or the World Bank Group (WBG) collectively, each with a specific scope and mission. Therefore, the WB expanded its scope to focus on the development needs of its member states in Africa, Asia, and Latin America. Specifically, in the 1950s and 1960s, the bank focused primarily on funding large infrastructure projects, such as roads, electricity grids, dams, and irrigation systems; simultaneously, it significantly increased technical assistance to its member countries. Meanwhile, in the 1970s, the WB shifted its focus to poverty reduction and enhanced its attention on rural and urban development, health, and nutrition. With time, it further expanded its scope to encompass the issues of education, communication, and good governance. This was accompanied by the diversification of staff, including public policy experts and social scientists. Thus, the World Bank has kept evolving itself throughout its history.
Keeping in view the dynamics of the World Bank in the 21st century, the bank has recently developed a new strategy with two main goals at its heart. The first is to end extreme poverty worldwide, and the second is to boost prosperity on a livable planet by fostering inclusive, sustainable, and resilient development. Indeed, inclusive and sustainable growth offers the surest path out of poverty. Therefore, the WB supports investments in countries that underpin long-term growth and help them meet their citizens’ needs, resulting in overall sustainable development. For instance, the bank has launched a new Digital Development Partnership (DDP). The DDP aims to close the global digital divide and enable its member states to reap economic and social connectivity benefits. This partnership includes expanding affordable internet access to more than four billion people who remain unconnected and building the digital skills and institutions that participate in the digital economy. In short, the 21st century is the age of digitization and interconnectedness; consequently, the World Bank has tailored its strategies to promote inclusive and sustainable development in its member states.
After discussing the World Bank in the 21st century, it is imperative to highlight its obligations. The first and foremost obligation of the WBis to curb poverty in its member countries. It is one of the prime responsibilities of the World Bank to launch specific projects that promote skill development in the unskilled labour force and enhance employment opportunities for them. Fortunately, the World Bank has fulfilled this obligation for many years. According to the World Bank Report, 2021, “The Rural Migrant Skills Development and Employment Project has successfully provided skills training to around 522,000 youth in rural areas and provided employment services to over 4.2 million job seekers in China.“ Hence, by inculcating skills in the labour force and increasing job prospects, the World Bank has effectively been working to minimize poverty in the member states.
Besides this, the second paramount obligation of the World Bank is to reconstruct its member countries. It is done by extending loans that help them access clean drinking water, build schools and train teachers, enhance agricultural productivity, build roads, railways, dams, etc., strengthen telecommunications networks, produce and distribute energy, improve healthcare facilities, and much more. For example, the Peruvian Sierra Irrigation Subsector Project by the World Bank has delivered irrigation service to 18,700 farmers across 14,700 hectares, significantly increasing the yields of key crops. The evidence shows the significance of the WB’s loans in developing the state. In summary, the World Bank is fully committed to reconstructing its members, one of its core obligations.
Apart from ending poverty and reconstructing its member states, the third crucial obligation of the World Bank is to bring foreign investments to its members. The World Bank supports client countries in attracting and retaining Foreign Direct Investments (FDI) and maximizing the positive spillovers of FDI for the local economy. To illustrate, the World Bank has improved the investment environment in India’s Rajasthan by reforming its automotive, solar power manufacturing, and IT-related services sectors. This improvement has created around $2 billion in FDI pipeline in these sectors, whichsignifies the role of the WB in fulfilling its principal obligation and attracting foreign investments in the associated country.
Moving forward, the fourth fundamental responsibility of the World Bank is reforming war-torn economies. Evidently, post-conflict reconstruction starts by supporting the transition from hostilities to peace in an affected country and rebuilding its socioeconomic framework. According to the World Bank Report, 2023, “Since 2022, around $38 billion has been mobilized from the World Bank and partners for war-stricken Ukraine.” Moreover,the World Bank has also established the Ukraine Relief, Recovery, Reconstruction, and Reform Trust Fund (URTF). This facility is helping Ukraine’s government sustain its administrative functions, deliver services, carry out relief efforts, and implement Ukraine’s recovery, reconstruction, and reform agenda. Further, the URTF focuses on repairing damaged infrastructure, restoring public services, and sustaining economic activities in the healthcare, energy, agriculture, and housing sectors. In a nutshell, the multi-sectorial support provided by the bank during the war sets the stage for resilient reconstruction till the peace returns. Hence, the WB efficiently fulfils its responsibility of reforming a war-torn economy.
Lastly, the preeminent obligation of the World Bank includes facilitating international trade among its members. Indeed, international trade opened up gates for all businesses to sell their goods and services in new markets, leading to increased growth for companies, and, hence, providing employment opportunities and promoting sustainable development. For example, the World Bank launched the Trade Facilitation Support Program (TFSP) in 2014 to support countries that seek assistance to improve their cross-border trade environments. In light of the program mentioned above, the Great Lakes Trade Facilitation Project by the World Bank facilitates cross-border trade between the Democratic Republic of Congo and its neighbours in eastern and southern Africa by reducing costs and time and improving the business environment at the border for traders. Besides this, the project also focuses on the constraints small-scale traders face in cross-border trade. It aims to improve land and lake border facilities and develop effective systems to connect businessmen to regional markets. Hence, international trade is a boon for a country’s economic prosperity. Thus, the World Bank has played a vital role in facilitating cross-border trade among its members.
Though the World Bank has lifted several countries out of the vicious cycle of financial crisis and assisted them in rebuilding their economies, unfortunately, like other organizations, it also has certain limitations. Some of them will be brought under discussion in this section. To begin with, the structural underrepresentation of the Global South is at the top of the list. Regrettably, the World Bank encompasses political power imbalances in its governance structures, as its voting shares are based principally on the size of countries’ economies. Therefore, poorer countries often receiving loans from the bank are inadequately represented in its decision-making processes. However, industrialized countries dominate their governance structures. According to the annual report by the Bretton Woods Project, 2019, “The leading G7 countries typically make decisions in the World Bank because they are the largest donors.” It is saddening to know that most policies are designed without proper consultation with developing countries. In a word, the under-representation of developing and underdeveloped countries is one of the limitations of the WB, which should be overcome as soon as possible to let every member benefit from it equally.
Furthermore, geopolitical considerations are another limitation of the World Bank, which has made development finances more challenging. For instance, after Russia invaded Ukraine in 2022, the WB cut ties with Russia and its ally Belarus, pausing all programs in the two states. Similarly, rival investment programs, especially those affiliated with China’s Belt and Road Initiative (BRI), have gained momentum as a way of financing infrastructure projects. Therefore, it has become increasingly difficult for the WB to fund infrastructure projects without becoming embroiled in geopolitical rivalry, thus making it one of its limitations and requiring urgent policy reforms.
In addition to that, weak accountability within the World Bank is also one of its limitations. Due to this, the bank ignores its environmental and social protection standards while financing large projects; the projects often destroy the local environment, including rivers, fisheries, and forests. For example, the construction of the Pak Mun dam in Thailand has destroyed the fisheries of the Mun River, impoverishing thousands of people who had made fishing their livelihood. Moreover, it is not a single incident in the history of the World Bank. Adding more to the picture, in 2009, the WB approved a nearly $200 million loan for palm oil production in Indonesia. Indonesia is the world’s second-largest reserve of forests and peat swamps, which naturally trap Carbon dioxide (CO2). To make way for palm oil plantations, the rampant clearing of forests has thus resulted in the giant release of CO2 into the atmosphere, making the country the third-largest emitter of greenhouse gases, especially CO2, on the planet. In conclusion, weak accountability in the World Bank has become a severe challenge to its practical work, making it a limitation.
Next, forced displacement is also considered one of the limitations of the World Bank. To launch a project and harness maximum benefits from it, the WB displaces millions of people residing in that location, thus causing human rights violations to some extent. To illustrate, the bank’s Protection of Basic Services (PBS) program for Ethiopia has undeniably led to the forced displacement of perhaps 1.5 million people. Though the authorities consider Ethiopia an emerging success story because of the sustained high rate of economic growth, the bank is under fire from rural Ethiopians and international Non-Governmental Organizations (NGOs) over the forced displacement of Ethiopia’s rural population. Consequently, the World Bank causes forced displacement to accomplish its projects, which has become one of its limitations.
Last but not least, structural adjustment loans offered by the World Bank are also considered a flaw. Undoubtedly, countries caught in financial crisis agree to the bank’s legal and economic reform package, irrespective of its conditions, thus making the citizens suffer the most. Argentina, Ecuador, and India are the glaring examples, which have either amended land laws or weakened their labour legislation to qualify for an adjustment loan. According to the research article “The World Bank and India” by Public Interest Research Group, “India has reported to have changed 20 pieces of major legislation for seeking the WB’s loan.” The bank’s view is that structural adjustment will lead to a reduction in poverty. However, the United Nations Children’s Fund (UNICEF) highlights that the world debt has risen from $0.5 trillion to $1.2 trillion between 1980 and 1992, with most countries pursuing structural adjustment policies being in greater debt. It may be noted that adjustment policies are better suited to wealthier countries, and there is indeed little evidence for the favourable outcomes of structural adjustment loans in lower-income countries.
However, the aggravating crises of COVID-19, the Russia-Ukraine war, global inflation, and frequent climate change calamities have battered the global economy. Therefore, the world needs to reorganize the nature of development investments. To achieve its mission “To end extreme poverty and promote shared and sustainable prosperity”, it is high time the World Bank seized this moment and redefined its role in the global economy. It can initiate this process by focusing on the five suggestions mentioned below to overcome its limitations effectively. First,the World Bank should consider voting reforms in its structure. Indeed, the Group of Seven (G7) and European Union (EU) member states represent 13 per cent of the global population; surprisingly, they control more than 50 per cent of all votes at the World Bank. As inclusive growth begins with inclusive governance, the World Bank should seriously consider voting reforms to address the grievances of its members regarding their unequal voice and inadequate representation.
Second, the World Bank should align all of its operations per the goals of the Paris Agreement. In addition to ramping up its funding for climate change, the bank must ensure that all of its actions are consistent with the goals of keeping global warming above pre-industrial levels to 1.5 degrees Celsius and enhancing people’s adaptation to the impacts of climate change. Moreover, it must design clear-cut climate-resilient methodologies, including specific guidance for the industrial and agricultural sectors to align with the Paris Agreement. Similarly, for the energy sector, the World Bank should follow in the footsteps of the European Investment Bank, which has committed to ending almost all financing for fossil fuels. Conclusively, this initiative by the World Bank will prompt the world to achieve the goals of the Paris Agreement.
Lastly,the World Bank should extend loans with flexible conditions for debt-led economies to strengthen their long-term economic growth prospects. Unfortunately, critical projects in crisis-hit countries are at risk of being cancelled or deferred; therefore, the World Bank should engage with all the stakeholders to isolate these from cuts. Hence, the Development Policy Financing (DPF) should offer negotiable terms and conditions to debt-distressed countries, companies, and Small and Medium enterprises (SMEs) and businesses and help them restructure their debts.
In summary,the World Bank is a unique international financial institution that can redefine its role in accomplishing its mission of minimizing poverty and promoting sustainable development by undergoing voting reforms, aligning all activities with the Paris Agreement, and extending loans to debt-led economies with flexible terms and conditions. These strategies will help the bank overcome certain limitations, such as the underrepresentation of developing countries, geopolitical considerations, and poor governance and accountability within the WB. By overcoming these limitations, the World Bank will efficaciously fulfil its core obligations, such as reducing poverty, reconstructing its member states, and bringing foreign investment into them. Hence, the World Bank must adopt innovative measures to harness its potential fully.
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