Saturday, August 22, 2009
International Bank for Reconstruction; its Functions and Objectives
The International Bank for Reconstruction and Development (I.B.R.D) better known as the World Bank was established at the same time as the International Monetary Fund to tackle the problem of International investment in 1944. Since the I.M.F was designed to provide temporary assistance in correcting balance of payments difficulties, there was need of an institution to assist long term investment purposes. Thus I.B.R.D was established for promoting long term investment loans on reasonable terms.
The World Bank is an inter-government institution corporate informs the capital stock of which is entirely owned by its member governments. Initially only nation there were members of the I.M.F could be members of the World Bank but the restriction on membership was subsequently released.
FUNCTIONS OF I.B.R.D
The principal functions of the I.B.R.D are set forth in Article (1) of the Agreement as follows.
1. To assist in the reconstruction and development of the territories of its members by facilitating the investment of capital fro productive purposes.
2. To promote 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 from funds borrowed by it.
3. To promote the long term balance growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investments for development of productive resources of members.
4. To arrange loans made guaranteed by it in relation to international loans through other channels so that more useful projects, large and small alike, will be dealt with first.
OBJECTIVES OF I.B.R.D
The objectives of I.B.R.D as incorporated in the Articles of Agreement are as follows.
1. To help in the reconstruction and development of member countries by facilitating the investment of capital for the productive purposes, including the restoration and reconstruction of economies devastated by war.
2. To encourage the development of productive resources in developing countries by supplying them investment capital.
3. To promote private foreign investment through guarantees and participation in loans and other investment made by private investors.
4. To supplement private foreign investments by direct loans out of its own capital for productive purposes.
5. To promote long term balances growth of international trade and the maintenance of equilibrium in the balance payments of member countries by encouraging long term international investments.
6. To bring about an easy transition from a war economy to a peace time economy.
7. To help in raising productivity, the standard of living and the conditions of labour in member countries.
The World Bank advances loans to member countries primarily to help them lay down the foundation of sound economic growth. The loans made by the Bank either directly or through guarantees are intended for certain specific projects of reconstruction and development in the member countries.
LENDING PROCEDURE OF I.B.R.D
The I.B.R.D advances loans to member countries in the following three ways.
1. Loans out of its own Fund: As we know that the Bank collects capital contributions from its members this results in the creation of a sizeable fund out of which the Bank advances loans to the needy member countries.
2. Loans out of borrowed Capital: Sometimes the Bank does not grant loans out of its own funds. It borrows funds from another member country for the purpose of giving loans to the needy members. The Bank pays interest to the member country from which it has borrowed funds for a specific period of time.
3. Loans through Bank’s guarantee: Sometimes the Bank encourages the private investors of a country to lend their funds to an other country by guaranteeing the repayment of loans and interest there on. Ordinarily the Bank does not lend to the member countries out of its own funds. The Bank lends out of its funds only when private investors in member countries are not forthcoming to make loans to the concerned country.
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