The author examines the Bank’s relations with the United Nations and what it means for the Bank to be associated with the UN system. He shows how the Bank, an autonomous economic and financial institution, is able to work in harmony with the United Nations, a political organization.

Abstract

The author examines the Bank’s relations with the United Nations and what it means for the Bank to be associated with the UN system. He shows how the Bank, an autonomous economic and financial institution, is able to work in harmony with the United Nations, a political organization.

Lewis Perinbam

Along with ten other international organizations, the World Bank, the International Development Association (IDA), and the International Finance Corporation (IFC) are designated by the United Nations as specialized agencies. According to the UN Charter, these agencies aim to promote “international cooperation in the economic, social, cultural, educational and health fields,” and to provide “higher standards of living, full employment and conditions of economic and social progress.” The relationship of each of these agencies to the UN is defined in an agreement between the agency and the UN.

Origins of the Specialized Agencies

The specialized agencies of the UN represent a “functional internationalism,” which has become a feature of modern international relations. This functional internationalism is based on the principle that there are specialized international jobs to be done which can be carried out most effectively by organizations that are separate from, even if related to one another. This pragmatic approach to international problems led to the creation and expansion of the specialized agencies.

The growth in number of these agencies may be traced to the development of international institutions in general since the League of Nations came into existence in 1920, and the growth in their importance to the political developments which followed World War II—notably the emergence of the developing countries. The League was a political, peace-keeping organization, to which were attached auxiliary organs and autonomous organizations. The best-known example of the latter was, of course, the International Labor Organization (ILO). As a political forum, the League conducted its affairs under the glare of publicity. The subsidiary agencies, on the other hand—particularly the ILO—were able to pursue their less controversial but important tasks in private and in a nonpolitical atmosphere.

As the record shows, the ILO flourished even though the League declined. The ILO was successful, it is generally believed, because it confined itself to matters within its fields of competence—such as working conditions, unionism, social security, and full employment—and because it avoided politics.

Lewis Perinbam, born in Malaysia and now a Canadian citizen, is the United Nations Liaison for the World Bank. Formerly Secretary-General of the Canadian National Commission for UNESCO, he was also the first Executive Director of Canada’s “Peace Corps”—the Canadian University Service Overseas. He studied at the University of Glasgow, Scotland.

Experience gained from the League of Nations was used in planning the United Nations. Realizing that the UN, as the successor to the League, would be preoccupied with political issues, its founders considered that “higher standards of living, full employment and & the solutions of international economic, social, health and related problems” should be promoted not only through the Secretariat and the General Assembly of the UN but also through the “various specialized agencies & having wide international responsibilities & in economic, social, cultural, educational, health and related fields” (UN Charter, Articles 55 and 57).

The Bank and the UN

The second decisive factor in the growth of the specialized agencies was the political emergence of the developing countries and their passionate desire for economic and social advancement. As Dr. Gunnar Myrdal, the noted Swedish economist, observed in the McDougall Memorial Lecture,1 “& after decolonization, the problems of the underdeveloped countries had to be internationalized. The disappearance of colonial responsibility has created a completely new world situation and places heavy new responsibilities on intergovernmental organizations.” The newly independent nations of the developing world have turned to the UN and the specialized agencies as a means of achieving conditions of economic well-being and social stability. They have done so because these institutions are universal in character and recognize the sovereignty of each nation regardless of its size or wealth. Moreover, the help which they receive from these agencies is regarded as coming from the international community as a whole and as being free of obligations to any one country or group of countries. To the developing countries that have so recently gained their independence, these considerations are of major importance.

Relationship Between the Specialized Agencies and the United Nations

The specialized agencies function for the most part as independent organizations, despite some limitations on their freedom of action. This independence represents yet another aspect of the desire to insulate their technical work from major political issues as much as possible. The present membership of the United Nations and its agencies is a witness to the flexibility of this approach. For instance, the Federal Republic of Germany is not at present a member of the UN, but is a member of all the specialized agencies, including the World Bank; Switzerland is not a member of the UN, the Bank, or the International Monetary Fund, but is a member of the other agencies.

The Specialized Agencies of the United Nations

International Labor Organization (ILO)

Food and Agriculture Organization of the United Nations (FAO)

United Nations Educational, Scientific and Cultural Organization (UNESCO)

World Health Organization (WHO)

International Bank for Reconstruction and Development (World Bank) and its affiliates, International Development Association (IDA) and International Finance Corporation (IFC)

International Monetary Fund (IMF)

International Civil Aviation Organization (ICAO)

Universal Postal Union (UPU)

International Telecommunication Union (ITU)

World Meteorological Organization (WMO)

Inter-Governmental Maritime Consultative Organization (IMCO)

(The International Atomic Energy Agency is not a specialized agency; it differs from the other agencies in that its main relationships are with the UN General Assembly and the Security Council and not with the UN Economic and Social Council.)

The activities of all the agencies are brought into relationship with the UN through the Economic and Social Council, to which they report, and which, in turn, coordinates their activities and those of the UN (UN Charter, Articles 63 and 64).

In what ways then are the agencies—these independent organizations—related to the UN? What is the nature of the agreements between them and the UN? To what extent does the agreement between the Bank and the UN differ from the agreements of the other specialized agencies?

The agreements between the UN and the specialized agencies offer a framework for working relationships within the UN system; at the same time, they recognize the functions and responsibilities of each agency. Although the agreements differ in detail, they have features in common; all of them, for instance, provide for reciprocal representation—although without the right of vote—at each other’s meetings, and for the exchange of information and documentation.

The World Bank differs from the other specialized agencies in several ways.2 The first is the way in which it is financed. The Bank has independent financial resources derived from the sale of its bonds in the capital markets of the world, the paid-in subscriptions of its members, and the servicing of its loans. Consequently, the Bank does not rely on annual contributions from its members for its budget, as do most of the other specialized agencies. This autonomy over its own administrative budget enables the Bank to enjoy a degree of independence not available to the nonfinancial agencies.

The second is its system of weighted voting. According to the Bank’s Articles of Agreement, the voting powers of the Bank’s Executive Directors are approximately proportionate to the capital subscriptions of the country or countries which they represent and do not follow the principle of “one country one vote,” which is the practice in the UN and in all the other agencies except the Fund.

Third, its membership procedures provide for new members to be admitted by the action of the existing members, with membership in the International Monetary Fund a precondition to membership in the Bank and its affiliates. Similarly, a country which ceases to be a member of the Fund is required to terminate its membership in the Bank unless the Bank “by three fourths of the total voting power has agreed to allow it to remain a member” (Article VI.3 of the Bank’s Articles of Agreement). This practice differs from that of the other agencies in which members are admitted by a formal acceptance of the terms and agreements of the agencies concerned.

While these features distinguish the Bank from most of the other specialized agencies, there is one vital way in which it also differs from the United Nations. The UN is primarily a political organization and an instrument for political action. Those who participate in its deliberations address themselves not only to an immediate audience but to the world at large. It therefore conducts its affairs openly and publicly. By contrast, the Bank, as an international financial institution, is an operational agency which is required, in the interests of its members, to carry out its work without publicity, free of political partisanship, and away from the forums of public debate. It was not easy to bring together two such disparate institutions. It was accomplished, on the one hand, through a legal relationship which recognizes the different characteristics of each organization and, on the other, through a close working relationship based on their common interests and functions.

As regards the legal relationship, the distinctive features of the Bank and the UN are embodied in the Bank/UN Agreement,3 which provides the framework for collaboration between the two agencies; it was approved by the Bank’s Board of Governors in September 1947 and ratified by the UN General Assembly in November 1947. The Agreement defines the relationship between the Bank and the UN, provides for interagency consultation and liaison, and, at the same time, recognizes that the Bank “is required to function as an independent international organization” (Bank/UN Agreement, Article 1.2).

The Bank’s independent status and the characteristics which distinguish it from the other agencies do not conflict, in practice, with the interests of the members of the UN. Although the Bank is an independent institution, it is not aloof from the concerns of the UN or its members. Its relationship with the UN is pragmatic and flexible and has been influenced by the exigencies of situations rather than by legalities. Indeed, it is this independence and flexibility which has prompted the Bank’s members, developing and developed countries alike, to use its good offices on occasion for the settlement of international disputes. For example, following the nationalization of the Suez Canal, the Bank helped to settle the compensation to be paid to the Suez Canal Company and to solve the financial difficulties between the Governments of the United Kingdom and the United Arab Republic. Again, in 1960 the Bank was successful in negotiating the Indus Waters Treaty which marked the end of the dispute between India and Pakistan over the sharing of the waters of the Tndus Basin.

Liaison with the UN System

The Bank maintains liaison with the UN in a variety of ways. First, the Bank and its affiliates are represented at sessions of the General Assembly and the Economic and Social Council, and at other meetings of the UN and the specialized agencies. Since meetings and conferences are an important feature of the work of the UN system, they invariably involve the Bank’s representation in a large number of meetings. For instance, during 1965 the Bank was invited to more than 150 meetings and conferences convened by the UN or one of the specialized agencies and attended some 80 of them; there are indications that these meetings are likely to increase in number and frequency.

Second, the President of the Bank is a member of the Administrative Committee on Coordination (ACC), which is chaired by the Secretary-General of the United Nations and is composed of the executive heads of the specialized agencies. The ACC is the main instrument for interagency consultation at the highest level, and it endeavors to ensure the effectiveness of the UN system as a whole.

Third, the UN/Bank Liaison Committee, which consists of senior representatives from both organizations, meets periodically for informal consultations on current programs and future plans. In view of the expansion in the operational activities of the Bank as well as the UN, these meetings help to ensure an effective and harmonious partnership.

Working Relations with the UN System

Although the Bank was conceived as an international financial institution designed primarily to mobilize capital, it has evolved into a development agency engaged in a wide range of technical assistance and development activities. The Bank’s response to the development needs of its members, especially those from the developing countries, has called for close cooperation with other international bodies, such as the United Nations Special Fund, which was recently merged with the Expanded Program of Technical Assistance to form the United Nations Development Program (UNDP). For instance, the Bank often acts as executing agency for preinvestment studies financed by the UNDP; in this capacity, the Bank prepares the plan of operations for the studies entrusted to it, recruits the necessary experts, determines their terms of reference, and supervises their work. The President of the Bank serves on the Inter-Agency Consultative Board of the UNDP, which advises the Administrator of the UNDP on the entire program. A number of feasibility studies financed by the UNDP have led to Bank loans or IDA credits for the projects studied.

The Bank also endeavors to keep the UN Resident Representatives informed of its operations and activities in the countries to which they are accredited; in turn, these Representatives are often of great help to members of the Bank staff on missions in their respective countries.

Another example of the Bank’s working relations with the UN stems from the Bank’s participation in the United Nations Conference on Trade and Development (UNCTAD) held in Geneva in 1964. At the request of UNCTAD, the Bank is carrying out special studies of a number of proposals that were made to improve the environment of trade and finance in which economic development takes place. The Bank staff has already completed two of these studies: the first deals with a suggestion made by Dr. David Horowitz, Governor of the Bank of Israel and leader of the Israeli Delegation to UNCTAD, that funds for lending on IDA terms be borrowed in the private capital markets with the industrialized countries guaranteeing the borrowing operations and subsidizing the difference between the borrowing and lending rates of interest. The second study concerns a proposal by the United Kingdom and Sweden on supplementary financial measures to prevent the disruption of development programs in the developing countries as a result of unpredictable shortfalls in their export earnings. Studies still in progress deal with the use and terms of suppliers’ credits, the problems of financing exports from the developing countries, and the possibilities of setting up a system of multilateral investment guarantees. (The first study was described by Shirley Boskey in “The Horowitz Proposal,” Finance and Development, Vol. II, No. 3, September 1965, pp. 167-74. The progress of the others will be followed in later issues.)

Cooperative Agreements with UNESCO and FAO

In 1964, the Bank decided to extend its activities to include education and to expand its work in agriculture. In this connection, it negotiated cooperative agreements with two of the specialized agencies, United Nations Educational, Scientific and Cultural Organization (UNESCO), and Food and Agriculture Organization of the United Nations (FAO), whereby these agencies act, in effect, as technical arms of the Bank in the fields of education and agriculture, respectively. Through these partnership arrangements, the Bank has gained access to the expertise, knowledge, and experience of UNESCO in educational matters and of FAO in agricultural matters, and these agencies, in turn, have acquired a financial partner with a special interest in financing educational and agricultural development projects.

As a result, in part, of the Bank/UNESCO Agreement, the cumulative volume of educational financing by the Bank and IDA rose from $22.6 million in June 1964 to more than $65 million in December 1965, and many other projects are in the pipeline. The Bank/FAO program has also progressed rapidly; by the end of 1965, 96 missions had been organized under the cooperative program, and Bank and IDA financing had amounted to $110.5 million for projects identified, prepared, or appraised under the joint program.

These agreements, which are proving increasingly productive, are a new feature of interagency cooperation. Why then should the Bank not negotiate similar agreements with other organizations? The Bank is pragmatic, and the exigencies of a particular situation play a large role in its policies and procedures. In the two instances described above, the agreements were necessary to implement the Bank’s new policies aimed at encouraging the agricultural and educational sectors in the developing countries. Moreover, these agreements reflect the unique conjunction of the Bank’s interests with those of UNESCO and FAO. Since adequate ad hoc working relations exist with the other agencies with which the Bank is involved, further possibilities for such agreements will depend on the Bank’s policies in the future and the practical desirability of this kind of arrangement in carrying out those policies.

The Bank: A Partner in Economic Development

The Bank is an integral and vital part of the international effort to improve the lot of the world’s citizenry. With its help the developing countries have benefited on a broader front and on a far greater scale than might otherwise have been possible. For its part, the Bank anticipates even closer relations in the future with its sister agencies in the UN family of organizations. It has responded to this prospect by strengthening its working arrangements with the UN system. These include the recent creation of the post of Special Representative for United Nations Organizations, the assignment of Bank representatives to FAO in Rome and to the Economic Commission for Africa in Addis Ababa, and the strengthening of the Bank’s European Office to enable its staff to intensify its relations with international agencies located in Europe. In all this, the Bank is helping to build an effective partnership between the developing and developed countries in the task of economic development. This kind of partnership represents a new dimension in international relations which could be of profound significance for the future.

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1

Delivered on November 22, 1965 at the FAO Conference in Rome.

2

These differences apply, for the most part, to the Bank’s two affiliates, the International Development Association and the International Finance Corporation. The International Monetary Fund shares with the Bank the features of independent finance and weighted voting, although the method of financing is different.

3

The Bank’s two affiliates, the International Finance Corporation and the International Development Association, were brought under the Bank/UN Agreement in 1957 and 1961, respectively.