The World Bank Group and the International Monetary Fund are not, of course, private sector entities; and in some respects they were admirably conceived to counteract imperialism. Critics of these bodies sometimes assume the best scenario is no IMF or WBG at all; others, more thoughtful and exhaustive, think the best scenario is a better set of international financial institutions.¹ As always, the reality is more complex: these bodies were designed along some obvious principles, with the conflicting goals of raising capital from member governments, while serving the needs of countries in need of development capital. They were not exclusively responsible for multilateral development assistance, but they were far more important than any other organizations. Finally, their staff had to win the confidence of a financial community that was long accustomed to enabling empire.

The IMF had a very different function from the Bank; the Fund was intended to be a lender of last resort for countries facing liquidity crises. The WBG began its existence as the International Bank for Reconstruction and Development (IBRD), and is not a bank at all but a specialized agency of the UN. However, it operates on a business plan closely analogous to a bank; for one thing, it has to borrow to lend. This post will be devoted specifically to research from The World Bank Since Bretton Woods, Mason & Asher, 1973 (Brookings Institute), and will explore not merely the IBRD, but also that of the IFC and IDA, two subsequent members of the WBG. Needless to say, I'll be addressing the early history of the IBRD, IFC, and IDA and the ruling philosophy.

From the beginning, the IBRD was dedicated to financing the reconstruction of Western Europe. About 35% of loans made between 1947-1952 were made to France, Netherlands, Luxembourg, and Denmark.² Of the balance, a large proportion went to the wealthiest Latin American countries (Argentina, Brazil, Colombia, and Mexico); also, significant loans went to Iraq. The size of the IBRD loan portfolio was modest; it was obligated to secure deposits in order to lend to anyone. Hence, the main effect was to (a) cover the interval before Marshall Plan assistance became available, and (b) stimulate the settlement of depression-era defaults by Latin American countries. It was essentially a lubricant that tended to facilitate loans that would probably have been made in any event.

Also from the beginning, the main target of WBG lending was to stimulate private sector development:

Under its articles of agreement, the Bank was expected to finance only those productive projects for which other financing was not available on reasonable terms. Surveying the field during its formative period, the management concluded that private capital would be most readily available to the low-income countries for the development of export products, such as tin, rubber, and petroleum [...]. The Bank management was opposed to financing government-owned industries.

[...]

At the same time, the Bank was led to eschew certain fields traditionally open to public investment, even in the highly developed free enterprise economies: namely, sanitation, education, and health facilities, Investment in these so-called "social overhead" fields were widely considered to be as fundamental to development as are investments in hydroelectric sites, railroads, highways, and "economic overhead" programs. The contribution of social overhead projects to increased production, however, is less measurable and direct than that of powerplants, and they can be completed without large outlays of scarce foriegn exchange.
[p.150-151]

This had some interesting spillover effects:

...Those who were most likely to invigorate the climate for private enterprise in less-developed countries were the ones who wanted to establish privately-owned manufacturing or processing plants, At the same time they were the least likely to seek Bank financing for fear that the government guarantee of repayment of both principal and interest required by the Bank would subject them to closer scrutiny and interference from their own government than would otherwise be the case. Governments, for their part, would be reluctant to criticize this hesitancy because a lack of proposals from the private sector would relieve the government of charges of favoritism for having guaranteed the borrowing of particular private groups within their borders.
[p.166-167]

The effect of this was to pool assets into channels carved by friends of the political elites in developing nations. While the rhetoric and "Blue Book" policies were ostentatiously in favor of free enterprise, the outcomes were decidedly feudalistic. Countries that expropriated foreign holdings without negotiated compensation—as, for example, Salvador Allende of Chile—were cut off from the WBG, as one would expect. On the other hand, those who had ready cash were enabled to borrow money at low rates for massive projects favored by the state. Large holders, such as the junker class of Pakistan, were rewarded by the state, and in return formed a crucial base of support for the state. Often they were literally the same people (e.g., Zulfikar Ali Bhutto).

Over time, imperialism was less a matter of developed Western nations controlling the lands of the south (although that aspect remained) and more a flow of resources to the West, financial and military support to the post-colonial leaders, and investment capital into a pool of assets controlled by financial autocrats distributed globally. During the late 1960's, the volume of FDI by the World Bank was modest. Prior to 1959, total loans outstanding were barely in excess of US$2.2 billion; net transfers to the developing world hovered between $56 million (1961) and $198 million (1963), funded in large measure by repayments from the developed world. In 1956, the International Finance Corporation (IFC) was founded with a capitalization of $100 million and a mission to find projects that were "marginal to begin with, that were relatively small, that could survive the rigors of the IFC's careful technical examination, and that would emerge in forms that were often unfamiliar in less developed countries."⁴ The IFC later relaxed many of its regulations, and its investment portfolio grew rapidly after 1964. By June 2003, its committed portfolio had grown to $16.8 billion (BIC), with leverage over development finance companies (DFCs)

The International Development Association (IDA), established in 1960, is the part of the WBG that provides long-term interest-free loans (credits) and grants to the poorest of the developing countries; it currently lends to 81 countries with a per capita GDP of >$900.

The IDA confirms one's faith in the ability of bureaucracies to remain afloat, to unfurl fresh sail, and to benefit from prevailing winds. The outlook in 1960 for an agency equipped only to make loans at close-to-commercial rates of interest to countries unable to borrow elsewhere would have been bleak indeed. The Western Europeans annd Australians were becoming too creditworthy to borrow from the [IBRD]. The Japanese were still large borrowers but obviously not destined to remain so. Among the less developed countries, on the other hand, India, Pakistan, and some other major borrowers were piling up external debt so rapidly as to call into question their continued creditworthiness for loans on Bank terms. The creditworthiness of newly independent countries in Africa... was also questionable. IDA, in short, had to be invented to keep the Bank preeminent, or at least eminent, in the growing complex of multilateral agencies attempting to facilitate international development.
[p.380]

This has had the effect of keeping the poorest governments "engaged" in the international financial system, chiefly by keeping states liquid. This is not an unmixed blessing:

Designed to have the discipline of a Bank, IDA loans have contributed to the on-going debt crisis of the poorest countries. The amount owed to IDA is more than 5 times that owed to IBRD. Using even the very narrow criteria of the Highly Indebted and Poor Country (HIPC) Initiative, 41 IDA countries were identified as having debt burdens that compromise the country’s capacity for development and growth. As well, structural adjustment conditions attached to IDA loans to ensure repayment have been criticized from all quarters for their negligible or negative development outcomes, including on economic growth. The profound impacts of structural adjustment have led to a global call for the end of structural adjustment lending and cries for more world and less bank.

The effects of the IFC and the IDA are heavily advertised at web pages, suggesting that these entities are lifelines to countries like Nepal, Afghanistan, or Ghana. Indeed, this is not entirely untrue; the Brookings study is, for the most part, highly flattering.

UPDATE (23 March 2005): By way of David (A Fistful of Euros), Felix Salmon critiques a WSJ editorial about Wolfowitz's nomination to the WBG presidency; the essay is extremely helpful to understanding the contemporary effects of the WBG:

The World Bank, it's worth remembering, is a bank, of sorts. It borrows money in the market at very low rates, and then lends it out at higher rates—albeit at levels high enough that it can make a bit of a profit on the transaction. It can lend at lower levels than the market as a whole because it has something called preferred creditor status: that is, even when countries like Argentina default on their bonds, they still pay the IMF and the World Bank in full. Chances are, if private investors could get preferred creditor status, then they too would lend at World Bank levels. In fact, if you look at the long-term returns received by the World Bank and by private investors, they turn out to be pretty much identical. The Bank charges lower interest rates, but has a lower default rate; net-net, it's a wash.

As readers can probably tell, I'm uncertain whether the WBG and the IMF have a net positive or negative effect. It seems that these entities channel development into channels which are convenient for international capital markets, which allows the development to take place much of the time, but also allows it to be hijacked so that it becomes chiefly a method of extracting rents from ex-colonies.

(Private Sector Imperialism-9)