El clima escolar y la convivencia con valores

MBA 843

INTERNATIONAL BANKING

UNIT 3 THE WORLD BANK

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INTERNATIONAL BANKING

1. To assist in the reconstruction and development of territories of its members by facilitating the investment of capital for productive purpose, and the encouragement of the development of productive facilities and resources in less developed countries.

2. To promote private foreign investment by means of guarantees on participation in loans and other investment made by private investors, and when capital is not available on reasonable terms, to supplement private investment by providing finance for productive purpose out of its own resources or from borrowed funds.

3. To promote the long-range balance growth of international trade and the maintenance of equilibrium in the balance of payments of member countries by encouraging international investment for the development of their productive resources, thereby assisting in raising productivity, the standard of living and conditions of workers in their territories.

4. To arrange the loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent small and large projects are dealt with first.

3.2 Membership

The members of the International Monetary Fund (IMF) are the members of the IBRD. It had 181 members in June 1996. If a country resigns its membership, it is required to pay back all loans with interest on due dates. If the Bank incurs a financial loss in the year in which a member resigns, it is required to pay its share of the loss on demand.

3.3 Organizational Structure

Like the IMF, the IBRD has a three-tier structure with a President, Executive Directors and Board of Governors. At present, Paul Wolfowitz is the President of the World Bank Group (IBRD, IDA and IFC). He was elected by the Bank¶s Executive Directors whose number is twenty-one. Of these, 5 are appointed by the five largest shareholders of the World Bank. They are the US, UK, Germany, France and Japan.

The remaining 16 are elected by the Board of Governors. There are also Alternate Directors. The first five belong to the same permanent member countries to which the Executive Directors belong. But the remaining Alternate Directors are elected from among the group of countries who cast their votes to choose the 16 Executive Directors belonging to their regions. The President of the World Bank presides over the meetings of the Board of Executive Directors regularly once a month. The Executive Directors decide about policy within the framework of the Articles of Agreement. They consider and decide on

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INTERNATIONAL BANKING

the loan and credit proposals made by the President. They also present to the Board of Governors at its annual meetings audited accounts, an administrative budget, and the Annual Report on the operations and policies of the Bank. The President has a staff of more than 6,000 persons who carry on the working of the World Bank. He is assisted by a number of Senior Vice-Presidents and Directors of various departments and regions. The Board of Governors is the supreme body.

Every member country appoints one Governor and an Alternate Governor for a period of five years. The voting power of each Governor is related to the financial contribution of its government.

3.4 Objectives of Funding Strategy

The IBRD¶s funding strategy has the following four basic objectives:

1. The first is to ensure the availability of funds to the Bank. For this purpose, the IBRD seeks to maintain un-utilised access to funds in the markets in which it borrows.

2. The second objective is to minimise the effective cost of those funds to its borrowers. This is done through the currency mix of its borrowings and the time of borrowings. In the former case, it tends to maximise borrowings in currencies with low nominal interest rates. This time of borrowings is manipulated in two ways: (a) when interest rates are expected to rise, the Bank seeks to increase its borrowings; and (b) when interest rates are expected to fall, it seeks to defer borrowings.

3. The third objective is control volatility in net income and overall loans charges. For this purpose, the Bank started in July 1982 a pool-based variable lending rate system than uniformly adjusts interest charges applicable to the outstanding balance on all loans made under it. The existing loans were not affected by this lending system. When the majority of loans and borrowings are incorporated into the new lending rate system in future, the volatility of interest rates will be much reduced.

4. The fourth objective of the funding strategy is to provide an

appropriate degree of maturity transformation between its borrowing and lending. Maturity transformation refers to the Bank¶s capacity to lend at longer maturities than it borrows. At the same time, it provides its borrowers with a modest degree of maturity transformation.

3.5 Borrowing and Lending Activities

The IBRD is a corporate institution whose capital is subscribed by its members. It finances its lending operations primarily from its own

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INTERNATIONAL BANKING

medium and long-term borrowings in the international capital markets, and currency swap agreements (CSA).

Under the CSA proceeds of a borrowing country are converted into a different currency, and simultaneously, a forward exchange agreement is executed providing for a schedule of future exchange of the two currencies in order to recover the currency converted. The effect of currency swaps is to transform the cost of original borrowing to a cost, which reflects the market yield of the currency obtained in the

conversion. The Bank also borrows under the Discount-Note Programme. First, it places bonds and notes directly with its member governments, government agencies and central banks. Second, it offers issues to investors and in the public market through investing banking firms, merchant banks and commercial banks.

The IBRD has evolved two new borrowing instruments. First, Central Bank Facility (CBF) is a one-year, US dollar dominated facility for borrowing from official sources, particularly central banks. It is designed to reserve the declining trend in the IBRD¶s borrowing from such sources since the 1970s. Second, borrowings in Floating Rate Notes (FRNs) are meant to help the IBRD to meet some of the objectives of its funding strategy. The FRN market enables the Bank to gain access to a set of investors like commercial banks and certain other financial institutions which have not traditionally bought IBRD notes.

The FRNs carry a medium/long-term maturity. A substantial amount of its resources also comes from its retained earnings and the flow of payments on its resources also comes from its retained earnings and the flow of payment on its loans.