International Finance Corporation - History

History

The World Bank and International Monetary Fund were designed by delegates at the Bretton Woods conference in 1944 and the World Bank, then consisting of only the International Bank for Reconstruction and Development, became operational in 1946. Robert L. Garner joined the World Bank in 1947 as a senior executive and expressed his view that private business could play an important role in international development. In 1950, Garner and his colleagues proposed establishing a new institution for the purpose of making private investments in the developing countries served by the Bank. The U.S. government encouraged the idea of an international corporation working in tandem with the World Bank to invest in private enterprises without accepting guarantees from governments, without managing those enterprises, and by collaborating with third party investors. When describing the IFC in 1955, World Bank President Eugene R. Black said that the IFC would only invest in private firms, rather than make loans to governments, and it would not manage the projects in which it invests. In 1956 the International Finance Corporation became operational under the leadership of Garner. It initially had 12 staff members and $100 million ($844.9 million in 2012 dollars) in capital. The corporation made its inaugural investment in 1957 by making a $2 million ($16.4 million in 2012 dollars) loan to a Brazil-based affiliate of Siemens & Halske (now Siemens AG).

In 1965, the corporation channeled $600,000 ($4.4 million in 2012 dollars) in capital from Deutsche Bank and other investors to Champion Cellulose, marking the launch of the IFC's Syndicated Loan Program. In the early 1970s, the IFC setup its own Capital Markets Department to bolster the stock markets, banks, and other financial intermediaries in developing nations and also offered its first advisory services to Indonesia. Afterward, the corporation formalized its advisory services. In the years that followed up until 1977, the IFC decentralized its operations by establishing field offices in its member states. As of 2008, only half of its staff operate from its Washington, D.C. headquarters.

In 1984, the IFC became finanicially autonomous and was authorized to issue its own bond instruments across international capital markets, thereby ending its reliance on World Bank financial support. The corporation's shareholders approved a capital increase of $1.2 billion ($2.7 billion in 2012 dollars) in order to expand its work in private development. The IFC increasingly invested in private energy from 1966 to 1994, financing 34 projects in the electric power sector worth approximately $7.4 billion USD ($11.5 billion in 2012 dollars). It financed 88 infrastructure projects across 26 member states at a total cost of $15 billion USD ($23.2 billion in 2012 dollars). It had invested in one energy project in 1966 and another in 1981, but in the six years between 1988 and 1994 it invested in a bulk of 32 energy projects.

The IFC adopted its Environmental and Social Standards in 1998 with the intent of prioritizing sustainability in its investment activities. In 2001, the corporation began attempting to implement such concerns into its investments. Critics have questioned the sustainability of some projects funded by the corporation. The IFC approved a $90 million loan in 2007 for the upgrading of a slaughterhouse facility in the Amazon region owned by Brazil's biggest beef producer Bertin, despite opposition from local NGOs, the Sierra Club, and the advisement against by the Bank's Independent Evaluation Group. Six months later in June of 2008, the IFC and World Bank ultimately backed out of the investment project and expressed dissatisfaction regarding Bertin's ability to meet its sustainability standards. In 2009, an internal audit by the Office of the Compliance Advisor Ombudsman determined that the IFC ignored its Environmental and Social Standards by approving $200 million worth of loan guarantees to fund the production of palm oil in Indonesia, a country faced with significant environmental risks to its rainforests. In 2010, the Office of the Compliance Advisor Ombudsman channeled a complaint by a collection of NGOs filed against the IFC for its equity and loan investments in an aluminum smelting operation in Mozambique which the NGOs allege could expose local inhabitants to harmful emissions.

The IFC is evaluated annually by the Bank's Independent Evaluation Group. In 2011, the group published an evaluation report titled "Assessing the IFC's Poverty Focus and Results" in which it noted that although the IFC's projects that emphasized inclusive growth patterns performed well and that poverty reduction was an implicit outcome, the IFC neglected to articulate and detail the impacts on poverty of the projects which target economic growth specifically. This circumstance made it difficult for the evaluation group to identify specific opportunities for the poor. The group ultimately recommended that the IFC adopt a more strategic approach to poverty reduction by better defining poverty reduction impacts and poverty itself, and that the IFC establish a framework for greater outside consultation on its understanding, measurement, and reporting on poverty reduction efforts.