International Development Association (IDA) came into force in November 1969 as an affiliate and complementary institution of the World Bank. This institution was created to provide loans to less developed countries on more liberal terms than those applied by the World Bank. Se, IDA is known as “Soft Loan Window” of the World Bank.
Objectives of IDA
The important objective of the International Development Association may be enumerated as follows:
- Provision of financial assistance to less developed countries on easy terms with a lower servicing charge than the one charged by the World Bank.
- Promotion of economic development, increase in productivity and consequent improvement in the living standards in less developed regions of the world.
In the words of the articles of agreement to IDA, the aims and objectives of this institution are to raise standards of living in the less developed areas of the world included with the association’s membership, by promoting economic development and increasing productivity. In particular IDA provides finance to meet their important development requirements.
The terms of loan are more flexible and bear less heavily on the balance of payments than those of conventional loans, thereby promoting development objectives of International Bank for Reconstruction and Development and encouraging its activities.
Membership and Organization of the IDA
Any member country of the World Bank can become a member of the IDA by subscribing to the IDA at the rate of 5% of its existing World Bank share capital subscription quota. By the end of June 1975, out of 125 member countries of the World Bank, 114 countries became the members of IDA. Of these, 20 were developed countries and the rest were developing countries.
The IDA has been organized similar to that of the World Bank. The management setup of the IDA consists of Board of Governors, Executive Directors and a President, all of whom holding similar positions in the World Bank. They serve as ex-officio members in the IDA.
By the end of June 1992, 142 countries were the members of the IDA. Out of these, 24 were developed countries while the remaining were less developed countries. Recently, China and some East European countries have become the members of the IDA. At present, about 179 countries are its members.
Capital Structure of IDA
The IDA has mobilized its capital from the subscription of member countries and supplementary resources. The initial subscription of the member countries was-1,000 million US dollars. From the point of view of subscription and voting power, the member countries of the IDA fall into two categories: Part 1 member countries and Part II member countries.
Part I countries pay their entire quota of subscription in freely convertible currencies or gold out of which IDA can extend loans to less developed countries. Some important part I countries are the USA, the UK, France, Netherlands, Federal Republic of Germany, Canada, Australia, Sweden, Japan, etc.
Part II member countries consist of less developed countries India, China, Pakistan, Brazil, Argentina and Indonesia. They were required to pay only 10% of their subscription quota in terms of gold and freely convertible currencies and the remaining 90% in their local currencies. The IDA cannot use these resources to lend without the consent of that member country whose currency is required for lending. Supplementary resources can be mobilized from Part 1 countries to lend loans on a large scale.
By the end of June 1992, the total subscription and resources contributed by Part I countries amounted to 69,754 million US dollars. Likewise, Part II members’ aggregate contribution on the same date was 2953.3 million US dollars. Since its inception, IDA funds have been replenished seven times by Part I countries. The twelfth replenishment of IDA was done by 39 donor countries in November 1998, amounting to 20.5 billion dollars.
Members have voting power in proportion to their subscription quota. Though part I members (developed countries) contributed 97% of the total resources of the IDA, they enjoy only 69% of voting power. It shows greater scope for decision-making in the IDA.
Achievements of IDA
In order to structure the economy of less developed countries, the World Bank set up the international development association in 1960. It is an aiding centre for several developing countries who look up to it for financial assistance. It is an association of donor countries who have come under the aegis of the World Bank to help developing or less developed countries whose paying capacity is limited due to their socioeconomic problems.
During the period from 1964 to 1968, the IDA extended an annual average amount of credit of 0.3 billion dollars which increased to 0.8 billion and 1.6 billion dollars during the years between 1969 and 1978. The annual average increased substantially to 3 53 billion dollars during 1984-88 which almost doubled (6.4 billion dollars) during 1990-1994. Though the IDA maintained this level of lending in the subsequent three years, it decreased to 4.6 billion dollars in 1997. However, it was 7.5 billion dollars in 1998 and 6.8 billion dollars in 1999.
During the fiscal years 2000 and 2001, the IDA sanctioned credit aggregating to 4.4 billion dollars and 6.8 billion dollars respectively. During the period from 1960 to 2001, it sanctioned credit amounting to 127 billion dollars. Countries in South Asia, East Africa and West Africa were the major beneficiaries of the credit scheme.