The Executive Directors are responsible for the conduct of the World Bank’s general operations, performing their duties under powers delegated by the Board of Governors. As provided in the Articles of Agreement, the member countries having the largest number of shares appoint 5 of the 24 Executive Directors; the rest are elected by the other member countries, which form constituencies in an election process conducted every two years.

Executive Directors consider and decide on IBRD loan and guarantee proposals and IDA credit, grant, and guarantee proposals made by the President, and they decide on policies that guide the Bank’s general operations. They are also responsible for presenting to the Board of Governors, at the Annual Meetings, an audit of accounts, an administrative budget, and an annual report (this report) on the Bank’s operations and policies as well as other matters that require submission to the Board of Governors. The Board of Executive Directors (the Board) also exercises an important role in shaping Bank policy and its evolution. It is in this role that the Board takes into account the evolving perspectives of member countries on the strategy and operations of the Bank Group. In this regard, the Operations Evaluation Department provides independent advice to the Board on the relevance, sustainability, efficiency, and effectiveness of operations. The department is directly accountable to the Board for performing evaluations as set out in its Board-approved policies, strategies, and work program.

The Executive Directors regularly meet at Bank headquarters to carry out their responsibilities, in formal Board meetings as the Committee of the Whole as well as in informal meetings. Directors also serve on one or more standing committees: Audit, Budget, Development Effectiveness (CODE), Governance and Executive Directors’ Administrative Matters (COGAM), and Personnel. With the committees’ help, the Board discharges its oversight responsibilities through in-depth examinations of policies and practices. Committees are not empowered to make decisions for the entire Board.

In fiscal 2004 the Audit Committee revised its terms of reference, taking into consideration emerging best practices in the areas of governance and oversight as well as the special status of the World Bank Group as a multilateral organization. The revised terms of reference are now the foundation for continued enhancements in the governance and control framework within the World Bank Group. The Budget Committee secured management’s commitment to the Board’s early engagement in the Bank budget process and plans to work with management toward developing an integrated multiyear framework. CODE, as part of the Bank’s simplification and harmonization efforts, discussed the eligibility of expenditures in World Bank lending. COGAM approved a new code of conduct for Board members and continued its discussion of Board effectiveness and the issue of voice and participation of developing and transition countries in the Bretton Woods institutions. The Personnel Committee recommended, and the Board approved, an employment policy for a more flexible work force.

Executive Directors and Alternate Executive Directors periodically visit borrowing countries to review Bank assistance in progress. They meet a wide variety of people, including project managers, beneficiaries, and government officials, as well as representatives of civil society organizations, the business community, other development partners, financial institutions, and resident Bank staff. During fiscal 2004 Directors visited Bosnia and Herzegovina, Serbia and Montenegro, Kosovo, Vietnam, Lao People’s Democratic Republic, and Samoa.

Directors also play an active role in preparing the agenda and issues papers for the semiannual meetings of the joint World Bank and International Monetary Fund (Bank-Fund) Development Committee. In fiscal 2004 the Development Committee continued to address the Bank’s strategy for monitoring progress in fighting poverty and achieving the internationally agreed-upon goals of the Millennium Declaration. Toward that end the Development Committee reviewed the first progress report, known as the Global Monitoring Report, on achieving the Millennium Development Goals (MDGs). (See chapter 4 of this volume and the Development Committee Communiqués on the enclosed CD-ROM.)

STRATEGIC ISSUES

The Board emphasized the following areas during the fiscal year.

Strategic Framework

The Board’s work during fiscal 2004 focused on the continued implementation of its Strategic Framework, last reviewed and updated in fiscal 2002. Management presented the Executive Directors with several papers on the strategic directions for the Bank Group for the fiscal 2004–06 period, including a medium-term strategy and finance paper. The Board reviewed these papers and expressed strong support for the continued focus on implementation and results toward attaining the MDGs, and on greater selectivity, trade-offs, redeployment, and efficiency gains.

The Bank’s Role in Poverty Reduction

The Board’s agenda continued to emphasize the Bank’s role and contributions toward meeting the MDGs. This year, in addition to the first Global Monitoring Report, Directors also reviewed other papers including the “Progress Report on Financing Modalities toward the MDGs” and “Supporting Sound Country Policies with Adequate and Appropriate Financing: Implementing the Monterrey Consensus at the Country Level.” The Board reviewed a report on poverty reduction entitled “Poverty Reduction Strategy Papers: Progress in Implementation and Detailed Analysis of Progress in Implementation.” It also considered 12 Poverty Reduction Strategy Papers (PRSPs) and 20 PRSP Progress Reports.

On the related issue of debt reduction, the Board focused on the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. In fiscal 2004 it considered 6 HIPC completion point documents. (The completion point is the point at which all creditors provide, unconditionally, the remainder of their share of debt relief agreed on at the decision point, the point at which the international community agrees on the amount of debt relief a country needs and begins providing it. The completion point is tied to implementation of key reforms and policies outlined in a country’s PRSP.) The Board also considered a number of joint Bank-Fund papers on the HIPC Initiative, including the annual HIPC progress report and papers on the HIPC sunset clause—the deadline for these countries to adopt programs of adjustment and reforms, supported by IDA and the International Monetary Fund and leading to the decision point—and the topping-up framework, within which additional debt relief is provided at the completion point in exceptional cases where exogenous factors have led to a fundamental change in a country’s economic situation. In addition, the Board considered the new joint Bank-Fund work on long-term debt sustainability in low-income countries.

Country Programs

Country Assistance Strategies (CASs) and the principles underlying the Comprehensive Development Framework and PRSPs remained the cornerstone of Bank Group work at the country level. Directors continued their call for a closer link between the CAS and the PRSP process and for grounding CASs in a realistic, measurable, results-based framework that can be monitored. The Board reviewed 38 CASs, 6 of which are results-based, and CAS products during the fiscal year. It emphasized the need for these strategies to be more focused and selective by building on partnerships. The Board also stressed the need to pay greater attention to implementation, capacity building, and risks.

Global Programs and Partnerships

The Bank has continued to respond to demands for its involvement in and support of global partnerships and international initiatives with the International Monetary Fund, other multilateral institutions, the United Nations system, bilateral aid agencies, and civil society. The managements of both the Bank and the Fund decided to strengthen the Joint Implementation Committee, giving it a renewed mandate to address issues that affect both middle- and low-income countries. Areas of collaboration include scaling up activities in support of middle-income countries and increasing debt sustainability in low-income countries. Other areas of collaboration included supporting anti-money-laundering activities and combating the financing of terrorism, improving the international financial architecture, providing implementation updates on the PRSP and HIPC processes, and strengthening Bank-Fund country programs and conditionality. The Board also reviewed the progress of global programs and partnerships and the development of a framework for monitoring cooperation among multilateral institutions.

OVERSIGHT AND FIDUCIARY RESPONSIBILITY

The Board exercises oversight and fiduciary responsibility on behalf of its shareholders, in part through its Audit Committee. The committee advises the Board on a broad range of financial management and other governance issues with the goal of strengthening the overall control environment and Board decision making on the Bank’s financial policy and direction.

ADMINISTRATIVE BUDGET

The total administrative budget for fiscal 2004 was $1,865.2 million, net of reimbursements, and included $178.2 million for the Development Grant Facility. The net administrative budget of $1,438.3 million represented a 2.5 percent real increase over the fiscal 2003 budget (a 6 percent nominal increase). In June 2004 the Executive Directors approved a total administrative budget, net of reimbursements, of $2,000.3 million for fiscal 2005.