The World Bank's outdated financial structure is a threat to its continued relevance. Paul Wolfowitz, the bank's new president, should begin closing the wing of the bank that lends to middle-income countries.
On March 31 of this year, Robert McNamara completed the first five years of his ten-year term as President of the World Bank Group. He has almost doubled in real terms the volume of lending by the Bank Group. He has more than doubled the size of the professional staff. He has changed the administrative structure. He has improved the relations of the Bank Group with the other international and national aid agencies. He has given the developing member-countries significant new help in their efforts to reduce their birth rates and to reconcile economic growth with the protection of their environment. He has set new criteria for lending.
The president of the World Bank delivering his annual address. (Yuri Gripas / Courtesy Reuters)
In 2007, the World Bank was in crisis. Some saw conflicts over its leadership. Others blamed the institution itself. When the International Bank for Reconstruction and Development, the cornerstone of what became the World Bank Group, was founded in 1944, poor and war-torn countries had little access to private capital. Sixty years later, however, private-sector financial flows dwarfed public development assistance. “The time when middle-income countries depended on official assistance is thus past,” Jessica Einhorn, a former managing director of the World Bank wrote in these pages in 2006, “and the IBRD seems to be a dying institution.” In roundtable discussions and op-ed pages, the question was the same: Do we still need the World Bank?
I took the helm of the World Bank in 2007, bringing with me a different vantage point, gained from historical perspective, personal experience, and my sense of the international landscape: that institutions matter. The creators of the Bretton Woods multilateral system had designed an international economic architecture to deal with the causes of the global financial breakdown in the 1930s and with the economic and security problems they thought would follow World War II. The World Bank was part of that framework, which covered monetary and currency issues, trade, investment, development, and the reconstruction of broken states.
In 2007, those challenges remained, although the conditions were vastly different. The rise and diffusion of private capital and free enterprise around the world now offered developing countries a great opportunity. Yet that did not obviate the need for the World Bank, because it was never simply about loans and grants: its role has been to contribute to the development of market economies in an open international system -- fostering growth, opportunity, and hope and overcoming poverty within a better political and security order...
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