History of the International Bank of Reconstruction & Development

Written by Frank Pobutkiewicz

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December 16, 2019

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History of the International Bank of Reconstruction & Development

As the Second World War came to a close; armies were disbanded, bombers were grounded, and destroyers came to port. In the wake of the single greatest conflict the world had ever seen, entire cities had been firebombed and tens of millions of Europeans were left displaced. Calculations from the FAS state that the total war expenditures for the United States alone in WWII were well over $4 trillion[1]. That money, of course, went toward tanks, battleships, rifles, and the Manhattan Project. The $270 billion spent by the Nazi Reich from 1941-1945[2] was not funneled into public infrastructure or services, but into a seemingly unstoppable war machine bent on conquering a majority of what is today Eastern Europe, the Balkan and Baltic States, part of Russia, and a majority of France.

Thus, when the dust began to settle, the question was raised: how should the leading victors of this war (the UK, USSR, and primarily the US) go about rebuilding? For many, photographs of the closing days of the Second World War can be deceiving. VE Day parades in Times Square and ending celebrations in Piccadilly hardly show the war-torn struggles of mainland Europe, China, Japan, or South East Asia. Breadlines in Paris were commonplace, and the images of Dresden and Tokyo— let alone Hiroshima and Nagasaki— continue to strike a chord. The sight of buildings turned into ruins, mutilated livestock, and burned out forests is hardly surprising when the numbers are taken into perspective. 75 to 80 million people (3% of the estimated 1940 world population[3]) died in combined military and civilian statistics. The world had shifted, and it was the victors’ job to put it back in place.

The United States was quick to ratify the European Recovery Program or Marshall Plan in 1948, issuing more than $12 billion in foreign aid to 17 war-torn Western, Southern, and Eastern European nations[4]. However, it was clear that a concerted effort would be necessary to revitalize the states affected by the war (including Germany, Italy, and Japan). Moreover, the inflation and currency fluctuations of the Interwar Period between WWI and WWII led many international economists to worry over the potential economic crash that could come with restoring peacetime economies from wartime production levels. At the 1944 Bretton Woods Conference in Bretton Woods, New Hampshire, delegates from the 44 Allied nations— including the US and USSR but joined by such states as Venezuela, Yugoslavia, and Costa Rica— discussed the financial implications of this new world. Over a two and a half week period, these countries’ representatives drafted the preliminary outlines for two organizations that would come to greatly affect the nature of international trade: the International Monetary Fund (IMF) and the

International Bank of Reconstruction and Development (IBRD).

While the IMF was intended to correct the currency concerns of the Bretton Woods Conference, the IBRD was designed to directly target the reconstruction projects of Europe and Asia by essentially having states contribute capital for the group’s individual purpose. By submitting to the IBRD’s Articles of Agreement, states would work with the institution to seek economic and infrastructural development for both itself and the world at large. In assuming that all states are “responsible stakeholders”, the IBRD possesses a mission which enforces the desire for economic interdependence and sustainability of the standing international system. Formally established in 1946, the IBRD held its inaugural meeting (alongside the IMF) in Savannah, Georgia in March. There, its bylaws were adopted, its Executive Directors were elected, and Washington, DC was set as the site for both new organizations[6].

Originally, the IBRD was the singular standing institution of the World Bank. It provided loans at reasonable interest rates for long-term projects to improve productivity in the nation borrowing the money. By the late-1950s however, it became clear that the IBRD was making a slow start due to three reasons: underfunding, initial contentions between the organization President and the Executive Directors, and the loan competition which the Marshall Plan instigated. Additionally, developing countries perceived the “generous gifting” of the Marshall Plan to European states as favoritism and became irate. Due in part to the assistance of US Oklahoma Senator Mike Monroney, the International Development Association (IDA) was formed in 1960, and its Articles of Agreement being passed by well over 51 countries by late-1960. This organization would be intended to provide soft loans for 80 of the world’s poorest nations; being laxer and more forgiving than the IBRD.

Since that time, the IBRD’s purpose has evolved. Originally set to reconstruct Post-War Europe, by the late-20th century, its mission had no purpose. From the 1990s to the present day, the IBRD’s focus has shifted from one of constructing highways, dams, seaports, and power plants to one of fighting greater world crises at large. This has included fighting climate change, eradicating poverty, and ensuring the peaceful adoption of democracy and free-market ideas.

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