The World Bank

Governance of the World Bank Group

Founding Documents

Each of the five institutions of the World Bank Group has its own Articles of Agreement or an equivalent founding document. These documents legally define the institution's purpose, organization, and operations, including the mechanisms by which it is owned and governed. By signing these documents and meeting the requirements set forth in them, a country can become a member of the Bank Group institutions.

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Each Bank Group institution is owned by its member countries (its shareholders). The number of member countries varies by institution, from 185 in IBRD to 143 in ICSID, as of April 2007. The requirements for membership and the country classifications the Bank Group uses are explained in chapter 3.

In practice, member countries govern the Bank Group through the Boards of Governors and the Boards of Directors. These bodies make all major policy decisions for the organization (figure 1.1).

The World Bank Group operates under the authority of its Boards of Governors. Each of the member countries of the Bank Group institutions appoints a governor, who is usually a government official at the ministerial level. If a member of IBRD is also a member of IDA or IFC, the appointed governor serves ex officio on the IDA and IFC Boards of Governors. MIGA governors are appointed separately to its Council of Governors. ICSID has an Administrative Council rather than a Board of Governors. Unless a government makes a contrary designation, its appointed governor for IBRD sits ex officio on ICSID's Administrative Council.

The governors admit or suspend members, review financial statements and budgets, make formal arrangements to cooperate with other international organizations, and exercise other powers that they have not delegated. Once a year, the Boards of Governors of the Bank Group (including ICSID's Administrative Council) and the International Monetary Fund (IMF) meet in a joint session known as the Annual Meetings. Because the governors meet only annually, they delegate many specific duties to the executive directors.

General operations of IBRD are delegated to a smaller group of representatives, the Board of Executive Directors. These same individuals serve ex officio on IDA's Board of Executive Directors and on IFC's Board of Directors under the Articles of Agreement for those two institutions. Members of MIGA's Board of Directors are elected separately, but it is customary for the directors of MIGA to be the same individuals as the executive directors of IBRD. Unlike the other four institutions, ICSID does not have a board. The president of the Bank Group serves as the chair of all four boards (and as the chair of ICSID's Administrative Council), but he or she has no voting power.

IBRD has 24 executive directors. The five largest shareholders – the United States, Japan, Germany, France, and the United Kingdom – each appoint one executive director. The other countries are grouped into constituencies, each of which elects an executive director as its representative. The members themselves decide how they will be grouped. Some countries – China, the Russian Federation, and Saudi Arabia – form single-country constituencies. Multicountry constituencies more or less represent geographic regions, with some political and cultural factors determining exactly how they are constituted.

The executive directors are based at Bank Group headquarters in Washington, DC. They are responsible for making policy decisions affecting the Bank Group's operations and for approving all loans. The executive directors function in continuous session and meet as often as Bank Group business requires, although their regular meetings occur twice a week. Each executive director also serves on one or more standing committees: the Audit Committee, Budget Committee, Committee on Development Effectiveness, Personnel Committee, and Committee on Governance and Executive Directors' Administrative Matters.

The boards normally make decisions by consensus; however, the relative voting power of individual executive directors is based on the shares that are held by the countries they represent (figure 1.2). For more on the constituencies, voting power, and elections of the executive directors.

The World Bank Group president is selected by the executive directors. The Articles of Agreement do not specify the nationality of the president, but by long-standing, informal agreement, he or she is a U.S. national (by custom, nominated by the U.S. executive director), while the managing director of the IMF is a European. The president serves a term of five years, which may be renewed. There is no mandatory retirement age.

The executive vice presidents of IFC and MIGA report directly to the World Bank Group president, and as mentioned previously, the president serves as chair of ICSID's Administrative Council. (ICSID operates as a secretariat whose secretary-general is selected by the Administrative Council every six years.) Within IBRD and IDA, most organizational units report to the president and, through the president, to the executive directors. The two exceptions are the Independent Evaluation Group and the Inspection Panel, which report directly to the executive directors. Additionally, the president delegates some of his or her oversight responsibility to two managing directors, each of which oversees several organizational units.

For more information about the World Bank Group president visit http://www.worldbank.org/president. For information about previous presidents of the Bank Group.

World Bank Group headquarters in Washington, DC.

The institutions that make up the World Bank Group specialize in different aspects of development, but they work collaboratively toward the overarching goal of poverty reduction. The terms "World Bank" and "Bank" refer only to IBRD and IDA, whereas the terms "World Bank Group" and "Bank Group" include all five institutions (box 1.1).

Through its loans, policy advice, and technical assistance, the World Bank supports a broad range of programs aimed at reducing poverty and improving living standards in the developing world. It divides its work between IBRD, which assists middle-income and creditworthy poorer countries, and IDA, which focuses exclusively on the world’s poorest countries. Working through both IBRD and IDA, the Bank uses its financial resources, skilled staff, and extensive knowledge base to help each developing country achieve stable, sustainable, and equitable growth.

IBRD and IDA share the same staff and the same headquarters, report to the same senior management, and use the same standards when evaluating projects. Some countries borrow from both institutions. For all its clients, the Bank emphasizes the need for   

• investing in people, particularly through basic health and education;  
• focusing on social development, inclusion, governance, and institution building as key elements of poverty reduction;  
• strengthening governments’ ability to deliver quality services efficiently and transparently; 
• protecting the environment;
• supporting and encouraging private business development; and
• promoting reforms to create a stable macroeconomic environment that is conducive to investment and long-term planning.

In conjunction with IFC, the Bank is also helping countries strengthen and sustain the fundamental conditions they need to attract and retain private investment. With Bank support – both lending and advice – governments are reforming their overall economies and strengthening financial systems. Investments in human resources, infrastructure, and environmental protection also help enhance the attractiveness and productivity of private investment.

IBRD, established in 1944, is the original institution of the World Bank Group and the source of the loans for which the Bank Group is best known. IBRD remains what many people mean when they refer to the World Bank. It has the largest country membership, the broadest mission, and the greatest number of staff in the Bank Group, both at headquarters and in offices around the world (box 1.2).

When IBRD was established, its first task was to help Europe recover from World War II. Today IBRD plays an important role in poverty reduction by providing the countries it now serves – middle-income and creditworthy poorer countries – with loans, guarantees, and analytical and advisory services. It provides these client countries with access to capital on favorable terms in larger volumes, with longer maturities, and in a more sustainable manner than the market provides. Specifically, IBRD

• supports long-term human and social development needs that private creditors do not finance;
• preserves borrowers' financial strength by providing support during crisis periods, which is when poor people are most adversely affected;
• uses the leverage of financing to promote key policy and institutional reforms (such as safety net or anticorruption reforms);
• creates a favorable investment climate to catalyze the provision of private capital; and
• provides financial support (in the form of grants made available from IBRD's net income) in areas that are critical to the well-being of poor people in all countries.
  

Box 1.2 IBRD Basic Facts

Year established:  1944 Number of member countries: 185 Cumulative lending: $420.2 billiona Fiscal 2006 lending: $14.1 billion for 112 new operations in 33 countries Web: http;//www.worldbank.org a. As of June 30, 2006. Includes guarantees from fiscal 2005.

IBRD raises most of its funds on the world's financial markets. It is an AAA-rated financial institution, but one with some unusual characteristics: its shareholders are sovereign governments and its member borrowers have a voice in setting its policies. IBRD provides loans, guarantees, risk management products, and analytic and advisory services. These services may be packaged together or offered as stand-alone services. Also, unlike commercial banks, IBRD is driven by development impact rather than by profit maximization. IBRD borrowers are typically middle-income countries that have some access to private capital markets. Some countries that are eligible for IDA lending because of low per capita incomes are also eligible for some IBRD borrowing because of their creditworthiness. These countries are known as "blend" borrowers. Hundreds of millions of the developing world's poor, defined as those who live on less than $2 a day, live not in the world's very poorest countries, but in middle-income countries, which are defined as those with an annual gross national income per capita between $876 and $10,725.

Countries are considered to have graduated from IBRD borrowing when their per capita income exceeds the level that the Bank classifies as middle income. For more information, including a list of IBRD graduates.