Digitized Records of the World Bank's First Loan (2024)

Digitized Records of the World Bank's First Loan (1)

2017 is the 70thanniversary of the signing of the World Bank’s first loan – a Reconstruction Loan to France in 1947. To mark the occasion, the World Bank Group Archives has publicly released records relating to the loan and made digitized versions of the records available through the World Bank’sdatabase. The digitized records, which consist of correspondence and memoranda relating to the negotiation, administration, and repayment of the 1947 loan, evidence the work involved in the execution of this seminal event in Bank history.

Initial Challenges

Digitized Records of the World Bank's First Loan (2)
The World Bank officially opened for business on June 25, 1946. As with any new organization, there were initial difficulties.

The World Bank's first President, Eugene Meyer, resigned abruptly in December 1946, without a clear successor. The Bank’s Vice President, Harold Smith, died suddenly on January 23, 1947. Although a few applications had been received, the Bank had thus far made no loans. However, the election on February 23, 1947, of John J. McCloy as the Bank’s second President marked the start of true operations in the World Bank. The Bank soon embarked on the preparation and execution of an important series of reconstruction loans to Western Europe countries, the first of which was to France.

The Loan Application

Digitized Records of the World Bank's First Loan (3)
The French loan application for $500 million arrived as a simple letter attached to an outline of the government’s reconstruction program, the Monnet Plan. The overall requirements included $106 million for equipment, $180 million for coal and petroleum products, and $214 million for raw materials. The equipment included ships, freight cars, trucks, radio and electrical equipment, and coal mining equipment. The list of raw materials included fertilizers, copper, tin, synthetic rubber, animal fats and chemicals.

Digitized Records of the World Bank's First Loan (4)
The timing of the French loan was ideal for the Bank to establish its credibility as a lender. It was just before the Bank’s first bond issue. France was expected to make good use of the dollars and was an acceptable credit risk. It was also understood within the Bank that this loan would not set a precedent. The loan was not “for the purpose of specific projects of reconstruction or development,” as specified in the Bank’s Articles of Agreement, but was covered under the “special circ*mstances” provision. For many years to come, program loans such as this French reconstruction loan would remain a minority as the Bank concentrated on project lending.

Appraisal

In hisoral history, Richard H. Demuth, at that time Assistant to the World Bank's Vice President, recalled the challenge of appriasing what would become the Bank's first loan:

Digitized Records of the World Bank's First Loan (5)
Nobody knew where to begin. We were inexperienced. We didn't know what kinds of questions to ask, what kind of investigation to make. We hadn't developed the kind of project approach that we worked out later. Our European problems were very different from our development problems at that time, of course, and the whole idea in fact of making national creditworthiness studies hadn't yet been developed. Just like any other new institution in a new field, at that time we were trying to struggle along finding our way.

Loan Negotiations

In his autobiography,This Is the Way It Was,then Bank Vice President Robert L.Garner recalled that the loan negotiations were not without their difficulties:

Digitized Records of the World Bank's First Loan (6)
It was difficult for [French chief negotiator Wilfrid Baumgartner] to accept our policy to require specific certification as to the precise use to which every dollar of our loan would be applied and the provision of the negative pledge clause. There was no precedent for such requirements and he considered that they were a derogation of the dignity of his country. The requirement for specific designation of the use of all the proceeds meant that every contract for purchase of equipment and materials must be submitted and approved by the staff of the Bank against certified bills of the suppliers. [...] We agreed to station a staff member in Paris to facilitate the necessary approvals and the system which we set up has been followed by the Bank.

Signing the Loan

France had originally applied for a loan of $500 million. The Bank agreed to half that amount, with the possibility of a second tranche. The relative amounts for each category in the overall requirements remained the same. The loan was signed on May 9, 1947. With this loan the Bank committed more than one third of its loanable funds held on June 1,1947. In real terms it is still the Bank's largest single loan, with a 1997 value of $2.6 billion.

The Bank’sSecond Annual Report 1946/1947assessed the circ*mstances surrounding the loan to France:

Digitized Records of the World Bank's First Loan (7)
The importance of France in the economic position of Europe made it particularly fitting that France should be the first country in whose reconstruction the Bank should play an active part. France is vital to Western Europe because of her size and her productive capacity and the problem of her recovery cannot be divorced from the recovery of Western Europe as a whole.

The Bank is fully aware of the uncertainties and difficulties facing France. Leaders of the French Government themselves have stated that they realize that unless France's budgetary difficulties are overcome, the ensuing fiscal instability will endanger the entire reconstruction program. Some of the factors impeding recovery are beyond the control of France. But to the extent that France has been able to speed her own recovery considerable success has been achieved. Her external debt record has been excellent. The Bank believes that its loan will hasten the process of reconstruction, that it will result in raising the level of France's productivity, and that the risks involved are of the type which the Bank was designed to accept.

Recovery in Western Europe

Further reconstruction loans to the Netherlands, Denmark and Luxembourg followed. Including the loan to France, the Bank loaned almost $500 million to postwar reconstruction efforts.

Digitized Records of the World Bank's First Loan (8)
Although the Bank's efforts were later upstaged by the Marshall Plan, they played an important part in the economic recovery of Western Europe.

As part of the Bank’s fifteenth anniversary in 1961, Richard Demuth looked back on the accomplishments of the World Bank in the pages of the Bank’s internal staff newsletter,International Bank Notes. He describes both the risk involved in the Bank’s first loan and the ultimate reward:

In the winter of 1947 the prospects that Western Europe would achieve economic viability were bleak indeed. The financial requirements were immense and the countries of Western Europe had practically no foreign exchange reserves to help meet them. Indeed, the threat loomed large that the Western European economies would come to a standstill for want of dollars to keep essential food, fuel and raw material imports flowing in. The Bank's reconstruction loans were an emergency measure to meet this situation. It took a bit of stretching for the management to conclude that repayment prospects were reasonable; the economic report on France, for example, laid its stress, not on financial resources or specific export prospects, but on the French "collective will to recover." The Bank's gamble paid off handsomely, however, for it won time necessary for the European Recovery Program (the Marshall Plan) to be formulated and put into effect (with considerable help from the Bank's staff), with results that are now familiar history.

Sources:

“The Bank’s First Loan: $250 Million to France.”Bank Notes. Vol. 5, No. 6, pp. 16-17. May 1987.

Demuth, Richard H. “A Look Backward.”International Bank Notes¸ Vol. 15, No. 6, pp. 6-10. June 1961.

Demuth, Richard H.Transcript of oral history. World Bank Group Archives Oral Histories, August 10, 1961.

Doggart, Caroline, "From Reconstruction to Development in Europe and Japan" in Lateef, K. Sarwar, ed.,The Evolving Role of the World Bank: Helping to Meet the Challenge of Development. Washington, D.C.: The World Bank, August 1995.

Garner, Robert L.This Is the Way It Was.Chevy Chase, Maryland: Chevy Chase Printing, 1972.

International Bank for Reconstruction and Development.Second Annual Report 1946/1947. Washington, D.C., 1947.

Digitized Records of the World Bank's First Loan (2024)

FAQs

What was the first loan given by the World Bank? ›

International Bank for Reconstruction and Development, Second Annual Report 1946/1947 Washington, D.C., 1947. "The Bank's First Loan: $250 Million to France" in The Bank's World, May 1987.

Who is the biggest borrower of the World Bank? ›

  • India takes the top spot. The world's most populous country owed $38.3bn to the WB at the end of 2022, down by almost $1.5bn from a year earlier. ...
  • China is another good example. ...
  • Nigeria, which placed tenth and is the only African country among the WB's top debtors, has seen its balance shoot up.
May 7, 2024

What is the name of the loan system of the World Bank? ›

The IBRD Flexible Loan (IFL) is the leading loan product of the World Bank for public sector borrowers of middle-income countries.

Is world bank data reliable? ›

The application of internationally accepted standards and norms results in a consistent, reliable source of information.

When was the first loan given? ›

Money lending can be traced to about 3000 BC in ancient Mesopotamia. Located in today's Middle East, ancient Mesopotamia was home to many different groups, including Sumerians, Babylonians, Assyrians, and Persians. Before fiat currency was widely used, these ancient peoples used food as a way to pay their debts.

Who gave America its first loan? ›

Paying for the American Revolutionary War (1775 - 1783) was the start of the country's debt. Some of the founding fathers formed a group and borrowed money from France and the Netherlands to pay for the war. To manage the new country's money, the Department of Finance was created in 1781.

Which country has no debt? ›

The 20 countries with the lowest national debt in 2022 in relation to gross domestic product (GDP)
CharacteristicNational debt in relation to GDP
Macao SAR0%
Brunei Darussalam2.06%
Kuwait3.08%
Hong Kong SAR4.27%
9 more rows
May 22, 2024

Who owns most of the World Bank? ›

The United States was a leading force in the establishment of the International Bank for Reconstruction and Development (IBRD) in 1944 and remains the largest shareholder of the World Bank Group today.

Which country is in the highest debt? ›

Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP.

Who controls the World Bank? ›

The organizations that make up the World Bank Group are owned by the governments of member nations, which have the ultimate decision-making power within the organizations on all matters, including policy, financial or membership issues.

Is China a member of World Bank? ›

Within the World Bank Group, China is one of the largest loan-taking countries.

Who can borrow from World Bank? ›

The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects.

Why is data missing from the World Bank? ›

Some countries do not regularly report data due to conflict, lack of statistical capacity, or other reasons (e.g. Somalia, North Korea, and some Caribbean and Pacific island economies).

How do I get data from World Bank database? ›

Get started
  1. Search Bar and Site Menu. The easiest way to look for data is to use the search box at the top of the page. ...
  2. Download. Data pages allow the option to download all displayed data in bulk. ...
  3. DataBank. ...
  4. Grab a widget. ...
  5. Access data through Web API. ...
  6. Data catalog. ...
  7. Micro data.

Is World Bank a real bank? ›

The World Bank is an international development organization owned by 187 countries. Its role is to reduce poverty by lending money to the governments of its poorer members to improve their economies and to improve the standard of living of their people.

What was the original loan amount? ›

Initial Principal: This is the original amount borrowed from the lender. It serves as the baseline for calculating interest and determining the repayment schedule. Outstanding Principal: A portion of each payment is applied toward reducing the principal as you make payments on your loan.

What was the first World Bank? ›

Its official name was the International Bank for Reconstruction and Development (IBRD). When it first began operations in 1946, it had 38 members.

What was the World Bank first created to help? ›

History of the World Bank

The original goals of both the World Bank and IMF were to support European and Asian countries needing financing to fund post-war reconstruction efforts. Both the World Bank and IMF outlasted the collective international monetary system which was central to the Bretton Woods Agreement.

When was the first IMF loan? ›

On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.

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