The role of the World Bank in a changing financial environment is discussed. The World Bank has made several notable changes in its financial structure and operations to assure its continuing financial strength in changing circumstances. Both the front-end fee and the variable lending rate system permit the Bank to pass through to borrowers the consequences of adverse interest rate movements. The Bank’s new financial policy has significantly increased its flexibility and reduced its vulnerability to financial turbulence.


The role of the World Bank in a changing financial environment is discussed. The World Bank has made several notable changes in its financial structure and operations to assure its continuing financial strength in changing circumstances. Both the front-end fee and the variable lending rate system permit the Bank to pass through to borrowers the consequences of adverse interest rate movements. The Bank’s new financial policy has significantly increased its flexibility and reduced its vulnerability to financial turbulence.

Roger Chaufournier

Vice President of the Bank’s Europe, Middle East, and North Africa Regional Office

By the time I joined the International Bank for Reconstruction and Development (The World Bank) in late 1952, a number of important events which laid the foundations of the institution and many of its lending policies had already taken place. The Bretton Woods Conference of 1944 had left many issues of development finance unresolved. In fact, very early, the Bank took a different direction from that envisaged by its founders.

Early issues

Originally, the Bank had been viewed primarily as a guarantor of private lending for sound projects and not for balance of payments support. But it soon became clear that the reconstruction needs of the war-devastated countries could best be met through nonproject financing. Similar program loans, or “impact loans” as they were called at the time, were made to developing countries, to finance the foreign exchange requirements of development programs. There was, in fact, a strong group in the U.S. Congress and elsewhere that advocated that the Bank engage in balance of payments support, on the grounds that it would be more conservative than the International Monetary Fund. There were also acrimonious debates outside and within the Bank on whether the financing of local costs, envisaged under the Bank’s Articles of Agreement only in exceptional circumstances, should not be more broadly accepted, in order to widen the choice of projects and expand the Bank’s development role.

Mr. Chaufournier retires from the Bank on June 30, 1984, after 32 years of service—Editor.

These familiar issues have often been revisited since those early years. What is remarkable is that so soon after Bretton Woods, the Bank was able to recognize that the exceptional circumstances referred to by the founders were more frequent and more widespread than was originally envisaged. Flexibility was then used to the fullest extent to allow the Bank to perform its reconstruction and development role.

In 1950, the winds of the Cold War had begun to chill relations between some member countries and major donors. Poland, which had applied for a large loan to help rehabilitate its coal industry, withdrew from membership in the face of insurmountable opposition to its borrowing. While the deterioration in international relations was to have an effect on Bank lending, its independence from outside political pressure was soon established. Indeed, the early battles between management and the Executive Directors were over the fundamental point of whether the Bank was to be influenced by political considerations, with member governments exercising direct control over lending decisions. There were several attempts in this direction, and in 1947, during the interregnum between the resignation of Eugene Meyer and the appointment of John McCloy, records show at least one Loan Committee meeting chaired by an Executive Director. These issues are discussed in detail in the accompanying article by Davidson Sommers.

The arrival of John McCloy largely settled the issue of who should manage the Bank. Soon there were also many assertions of management independence in the conduct of lending policy. One such example was the first loan to Chile in 1948, which was also the Bank’s first development loan. Despite strong pressures, management insisted that before it could proceed with the loan, it had to know more about the Chilean economy and about the project; an economic mission was dispatched to gather the necessary information, and from that time onward, feasibility studies were required before any financing was undertaken. On the same occasion, the Bank established the basis of its policy on debt disputes, insisting that, before a loan could be presented to the Executive Directors, management had to be satisfied that “the defaulting country had the will to settle and was prepared to make a reasonable settlement.”

Another important decision concerned the adoption of international competitive bidding. The policy did not arise as a result of pressure from member countries, as could be expected in a cooperative institution where every supplying country should have a fair chance. At the time the policy was adopted there were hardly any goods or services which could be procured outside the United States. The policy is credited to Spec Wheeler, the Bank’s Engineering Advisor, who was persuaded of its merits through his experience as a General in the U.S. Army Corps of Engineers. The policy was enforced early on, despite strong appeals by U.S. companies to the highest levels of Bank management.

Those early years, were characterized by endless debates on liquidity policy, loan covenants, supervision (or end use, as it was called later), interest rates, and commitment charges. The decision to charge a uniform rate of interest for all projects and for all countries was taken in the first year of operations. Most loan covenants remain largely as they were formulated at the time. In 1947, one year after opening its doors, the Bank was in business with its first loan to France for $250 million, the only one made in that fiscal year. The progress of operations was uneven. In 1952, the Bank made 19 loans for almost $300 million; in 1953, however, lending was limited to 10 operations for $178 million. The institution had not yet reached its cruising speed. This article will chronicle the stages it passed through until the arrival of Robert McNamara in April 1968, after which it reached that speed in the early 1970s.

The 1950s

By 1950, economic recovery in Europe was well on its way. In the developing world, the notion of progress was spreading rapidly and each member country wanted its share. The Bank, which had contributed only marginally to financing reconstruction in Western Europe, was now turning its attention resolutely to the needs of the developing world; 1952 marked a turning point in the history of the institution. It was the year during which the first major reorganization of the Bank took place. The two existing departments, the Loan Department and the Research Department, were split into three Area Departments and a Technical Operations Department. It was an early recognition of the need to focus attention on individual countries, while ensuring at the same time that the technical aspect of projects would receive full attention. The so-called creative tensions that ensued were designed, in the words of a former colleague, to protect the Bank against “the excesses of both the diplomats and the technocrats.”

The Federal Republic of Germany and Japan became members in 1952. But the Bank was not only broadening its membership, it was broadening its activities. I remember the 1950s as a decade of major accomplishment for the Bank, as a project lender, as an institution builder, and as an advocate of development. It was also a time when the ethos of the institution developed into that of a technically competent development institution, conservative but flexible, self assured, and a trifle arrogant but with a strong esprit de corps and pride in its accomplishments. This, at the beginning of the decade, was in strong contrast to the Fund which was still trying to find its footing.

The culture of the institution was decidedly Anglo-Saxon; close to 80 percent of the staff were from the United States, the United Kingdom, or Canada. A Bank jargon was pervasive; drafting and redrafting occupied the major part of staff and management time. Some of us will remember Sir William Iliff’s little essay “gobbledy-gook,” a Bank version of Rudolf Flesch’s Art of Plain Talk. There were the usual complaints from national minority groups; the “old boy” network was functioning effectively in deciding managerial appointments. I remember an interview with a panel established by Eugene Black to investigate allegations of discrimination against Frenchmen. Personally, I was struck by the absence of divisiveness, but for those who did not have English as a native language, insistence on linguistic perfection was a source of constant irritation. The sense of hierarchy was strong, but contact between senior management and staff was close and frequent. The Bank was then refreshingly unbureaucratic, small enough to rely on people more than on procedures.

Eugene Black had a patrician aloofness—we always called him Mr. Black—but we knew his consideration for younger people and his ability to motivate them. I recall his impatience with the nitty gritty and his indifference to internal management. “I make deals,” he used to say—and what a superb dealmaker and bond salesman he was! There was an aura of statesmanship and flair about him that affected the institution. The Bank was known as Mr. Black’s Bank.

Important events took place under his leadership, and the diplomacy of development flourished. The Indus Basin Agreement was reached in 1960 between Pakistan and India when President Ayub Khan and Prime Minister Nehru signed a treaty. It was the culmination of nine years of complex and difficult negotiations, during which the Bank’s President and some of his senior associates played a key role in shaping the final outcome. There was also the unsuccessful mediation in the Iranian oil dispute and the Aswan Dam episode, which drew the Bank into the Cold War. The refusal by the U.S. Government to finance its share of the project, despite Mr. Black’s strong plea, forced the Bank to withdraw. All these events projected the Bank to the forefront of world attention.

This was a period of other solid accomplishments. The Economic Development Institute was founded, and the International Finance Corporation and the International Development Association were created as Bank affiliates. Ten years earlier, Eugene Black would have been shocked at the suggestion he might some day propose lending on soft terms. By the late 1950s he was able to see that the least developed member countries could not mount a satisfactory development effort without the support of substantial amounts of concessional lending. This realization was clearly reinforced by the acceleration of the process of decolonization, which brought so many of the newly independent states into the membership of our institution in the early 1960s. IDA was an act of vision and an essential step toward a full-service development institution.

There were innovations and flexibility in lending, and technical assistance was expanded. The Bank was responding to change by adapting itself and, when it could not, by creating suitable new institutions. Economic work became more sophisticated and expanded steadily as an underpinning for our lending activities. A sectoral approach was introduced in economic analysis and planning of development projects. There was also a new emphasis on institution building as well as on conditionality in lending policy. As a result, for example, the Bank stopped lending for several years to some major countries like Brazil until economic performance improved. Adequate infrastructure, particularly energy and transportation, was viewed as a precondition to development. It is therefore not surprising to find that, in its first 15 years of operations, the Bank financed an installed capacity in energy in Latin America equivalent to the total capacity in existence in the region 15 years earlier; the impact on organization and policy in the sector was considerable.

Country creditworthiness was measured through the 10 percent rule of thumb. The danger signal flashed when debt service exceeded 10 percent of export earnings. Respect of external obligations was strictly monitored; lending to several countries was delayed several years pending progress on settlement of external obligations. By the end of Eugene Black’s term, lending activities were gathering momentum. During 1962, his last year in office, the Bank made 29 loans and 18 IDA credits for a total exceeding one billion dollars for the first time.

Between 1950 and 1962, the membership of the institution and its staff had more than doubled; the number of operations and the volume of lending had increased fourfold. The Bank’s reputation as a development institution was well established and the last years of Eugene Black’s presidency had seen some important initiatives. In addition to the creation of IDA and IFC, there was the launching of consultative groups, and innovative cofinancing such as in Mexico. Still, from the outside, Bank procedures and policies were viewed as old fashioned, “antediluvian” in the words of a major borrower, and the Bank was increasingly criticized as being too conservative.

The 1960s

When George Woods arrived at the Bank in 1963, he found the institution ready to catch its second wind. The outside environment provided the opportunity. As soon as President John F. Kennedy took office, he had launched the Alliance for Progress. There was a new spirit in Washington and renewed enthusiasm for development aid. At no time since the Marshall Plan were there such a community of interests and such a favorable environment for international cooperation; the idea of a compact with borrowers undertaking to reorder their economies and donors pledging increased support became a new challenge. I was privileged to be a witness at the launching of the Alliance in Punta del Este in 1961. Che Guevara was there, representing Cuba. The forces of change were already on the move. The idea of the Alliance was visionary, and it was as generous as it was ahead of its time. Few countries then were ready to make the necessary adjustments to their economies and one had to wait until the oil shocks and the world inflation of the 1970s for a larger number of countries to initiate such a process. By then, unfortunately, the support they needed to facilitate this adjustment was on the decline.

The Alliance had an important effect on the Bank. Increased aid in response to economic performance, donor cooperation, and coordination were features of the early 1960s. The Bank’s economic work was considerably strengthened and became increasingly policy-oriented. Lawyers had exercised the dominant influence in the Bank in the early years, contributing ideas and concepts; the 1960s became the economists’ golden age. An Economic Committee was established on a par with the Loan Committee. Economists were appointed as managers in the Projects Departments, to improve economic methodology and the policy links.

This was also a period of close cooperation with the Fund. The lines were sometimes temporarily blurred, with the recognition that stabilization of any economy, in order to endure, had to be based on medium-term adjustment and resumption of longer-term growth. In Argentina, the Bank negotiated exchange rate adjustments while the Fund concerned itself with the rehabilitation of the railways as a condition for its financial assistance.

Cooperation between the Bank, the Fund, and bilateral aid agencies was particularly close when Colombia’s borrowing needs were approached in a comprehensive manner based on a medium-term investment plan. The economic dialogue that followed provided the context in which subsequent Bank operations developed. It covered several of the features which are found today in the more comprehensive approach of current structural adjustment loans. In January 1963 the first Consultative Group meeting organized by the Bank was held for Colombia. Burke Knapp, then the Bank’s Vice President, chaired the opening meeting. The Fund was represented by Per Jacobsson, its Managing Director.

The Colombian case and the aid program for Chile represented successful approaches to consultation between donors and recipient countries. At the same time, there were hushed references in the corridors of the Bank about other instances where the use of lending to influence policy had cooled relations between the Bank and some of its major members.

Under George Woods, the Bank evolved from a development institution toward a full-service development institution. One of his major contributions was to push the Bank into new lending for agriculture and education. Until then, lending for agriculture had been confined to brick and mortar, to infrastructure projects like dams, and to financial institutions as a channel for financial credits. Still, despite George Woods’ efforts and until the arrival of Robert McNamara, lending for agriculture remained of the traditional type, predominantly plantation or commercial agriculture, largely influenced by the experience of former colonial agricultural officers who constituted a large proportion of the Bank’s agricultural staff. By the time I came to the Bank’s Western Africa Regional Office in 1968, the Bank had financed only one agricultural project in the 24 countries of the region.

Cooperation with other UN agencies developed rapidly under George Woods. Consultative Groups for coordinating aid efforts were established for a number of countries. Many African countries that had recently become independent joined the Bank in 1963, and aid began to be reoriented toward the poorest. Market rates of interest at a premium over Bank lending rates were introduced for a short while, to push higher-income countries to the capital market. This led to the voluntary graduation of some countries like Norway. The Young Professional Program was established in 1963 to recruit staff straight from universities or early in their careers to broaden international recruitment and strengthen the institution through greater cultural diversity.

To those who knew him well, George Woods was an inspiring force. He had vision and his instincts were sure; he knew the complexity and the many dimensions of development. I remember him asking about the progress of El Chocon Project in Argentina. When I told him that the rate of return was still hovering around 6 percent, he replied that only small people thought exclusively in terms of rate of return. He knew that the rate of return was only a discipline and that there were other dimensions that affected development. He was a precursor of important things to come, and he opened the door for the expansion of our activities in the social sector.

Although George Woods never struck a good rapport with our African members, by pushing lending for agriculture and education, by pressing hard for a larger replenishment of IDA, by establishing the first regional resident mission in Africa, and by commissioning two important studies on that region, he did more for the poorest countries, and particularly for Africa, than anyone in the Bank had done before. George Woods, through the force of his personality had reinforced the presidential character of the institution. Like his predecessor he was aided by a group of Executive Directors of considerable stature, many of them having occupied the most senior financial posts in their own countries, and by a group of very able senior administrators. Perhaps as remarkable during these early years was the ability of the institution to attract staff with a high degree of expertise, experience, and commitment who established very early the reputation of high professionalism which the Bank has enjoyed ever since. Burke Knapp, as Vice President and chairman of the Loan Committee under three presidents, provided firmness, continuity, and predictability to the direction of our operations as well as motivation and trust, sometimes under trying circumstances; he invited me to join the Bank in 1952 and as my mentor for so many years I cannot fail to express the debt of gratitude we have toward him.

By the mid-1960s, the U.S. role as a leader of development aid was rapidly fading. George Woods sensed the need for mobilizing greater support for our institutions. He commissioned a review of the criteria for IDA lending and, more important, launched the idea of a “grand assize,” an international commission of influential opinion-makers under the chairmanship of Lester Pearson. The IDA review and the establishment of the commission were not completed under George Woods. The commission’s Partners in Development did promote the Bank, in the words of Harry Johnson, into a major institution of world government. The stage was set for a further deepening of our understanding of the process of development, for our preoccupation with absolute poverty and social justice, for the strong and enlightened leadership, and for the frenetic activity that characterized the presidency of Robert McNamara.

The World Bank offers employment opportunities to qualified men and women at its Headquarters in Washington, D.C., for the following positions:

Personnel Officers: To provide professional leadership in the formulation and delivery of personnel services in the broad areas of human resources management and organization development. The successful candidate(s) must have had several years of experience in each of three or more of the following areas: i) career and performance management, ii) organization development, iii) human resources planning, iv) personnel policy analysis and development, v) staff counseling and conflict resolution, vi) design and delivery of management and professional skills training programs, vii) personnel administration, viii) recruitment and selection. In addition, the candidate(s) must have had working experience in large multinational/multicultural environment with excellent command of spoken and written English. Experience in design and application of Personnel Management Information Systems would be advantageous.

Management Trainers: The successful candidate(s) must have had extensive experience as Management Trainer in designing, delivering, and evaluating programs for managers at senior levels. It is important that the trainer should have a sound academic base in management or behavioral science, with extensive experience as an internal organizational trainer in a number of large organizations operating in different cultural settings. The person most likely to succeed in this position is someone capable of designing training, without an over reliance on standard models or formulae, to meet the specific needs of a very demanding and intellectually adept management population in a highly complex and dynamic organizational setting. The appointee(s) will join a small team of Management Trainers working closely with managers in the institution and some external consultants. They will be involved in developing a new integrated Management Training Program, and providing internal consultant support to managers throughout the organization.

Management Consultants: To plan, direct, and organize complex management study projects aimed at maintaining and improving institutional efficiency and effectiveness. The successful candidate(s) should have an advanced degree in business, public administration, or a related field. Also specialized training and/or experience in one or more of the following disciplines: Financial Management, Personnel Management, Organization Development, Operations Management, etc.

The World Bank offers a competitive salary and benefits package. Please send a detailed curriculum vitae, quoting reference No. 44-USA-8201 to:

The World Bank Staffing Division

1818 H Street, N.W., Washington, D.C. 20433 U.S.A.