The International Bank for Reconstruction and Development (IBRD), better known as the World Bank now, was established at the same time as the International Monetary Fund (IMF) to tackle the problem of international investment. Since the IMF was designed to provide temporary assistance in correcting the balance of payments difficulties, an institution was also needed to assist long-term investment purposes. Thus, IBRD was established for promoting long-term investment loans on reasonable terms.
The World Bank (IBRD) is an inter-governmental institution, corporate in form, whose capital stock is entirely owned by its member governments. Initially, only nations that were members of the IMF could be members of the World Bank; this restriction on membership was subsequently relaxed.
What does it do?
The principal functions of the are as follows:
- It assists in the reconstruction and development of the territories of its members by facilitating the investment of capital for productive purposes.
- It promotes private foreign investment by means of guarantee of participation in loans and other investments made by private investors and when private capital is not available on reasonable terms, to make loans for productive purposes out of its own resources or from funds borrowed by it.
- It promotes the long-term 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.
- It arranges loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent projects, large and small alike, will be dealt with first. It appears that the World Bank was created to promote and not to replace private foreign investment. The Bank considers its role to be a marginal one, to supplement and assist foreign investment in the member countries.
A little consideration will show that the objectives of the IMF and World Bank are complementary. Both aim at increasing the level of national income and standard of living of the member nations. Both serve as lending institutions, the IMF for short-term and the World Bank for long-term capital. Both aim at promoting the balanced growth of international trade.