In what is considered the developing world, one of the most important institutions is the World’s Bank. Most people in the developed world believe the World Bank is a valuable institutions but we really do not know what goes on within the bank. A book about the World Bank was written by Sebastian Mallaby published by Penguin Books, London, UK, 2004. Although the book is a few years old, the issues really have not changed.

The World Bank was created after World War II, to help the reconstruction and development of the economies of the world and ideally not to go communism. What is now considered the G7 countries do the bulk of the funding of the World Bank. It lends about $20 billion a year and has a great influence over the developing world’s policies. If you are interested in development around the world – the World Bank has a great amount of information – work done by the World Bank professionals’ report – check out their website.

In the book, the author writes about the Jim Wolfensohn Presidency and his desire to change the World Bank to more proactive. The desire of Jim to change is evident, how he does it led to many stories about his form of management. When Jim arrived, the Bank was essentially lending money to pay the interest of former loans and not being proactive. Change happen and two success stories were in Bosnia and Uganda.

Framework for development includes 3 planks: The government should be clean or  limited corruption: an effective justice system to fight corruption; and a properly supervised financial system. If the 3 planks are not there, money will go to tax haven countries.

In the book, because it was focused on Jim and one can see how critical personal relations are to trying to achieve something good.

Another chapter discusses when countries currencies decrease. All countries currencies move up and down, but some will collapse faster than others. The currency of the country begins to go down; the IMF and the World Bank are supposed to buy the currency but often the process does not work. When a currency goes down, there is a linkage between corruption and a number of banks that gave loans to cronies of the President and many of the loans realistically will not get paid. This means the bailout goes to the banks who continue to loan money which is not going to get repaid. The system eventually collapses. The pattern has been repeated in many countries around the world. The next it happens short the currency.

Linking to dividend paying stocks, the corruption aspect of the countries are repeated in companies. When corruption occurs, companies revenues will drop and dividends will not be paid. If you see the pattern in a country or a company, look to short the stock or currency otherwise you will need to quickly seek alternatives.

There are more questions than answers, till the next time – to raising questions.