WASHINGTON/PARIS & LUXEMBOURG CITY, August 28, 2022—Seventy-five years ago today, the newly established International Bank for Reconstruction and Development (IBRD), now known as the World Bank, made its first and only loan to Luxembourg. The loan was IBRD’s fourth loan, laying the foundation for Luxembourg’s steel industry and playing a key role in supporting the country’s economic recovery in the aftermath of World War II.
The loan, officially dated August 28, 1947, was for US$12 million, equivalent to approximately US$155 million (€ 152 million) today, to support Luxembourg’s Steel Mill Railway Project. The money financed rolling stock for the railways and equipment for the steel industry: US$4.5 million were used to purchase locomotives, box and gondola freight cars, baggage cars and miscellaneous railroad equipment; and US$ 7.5 million to purchase a modern reversing steel strip mill, which enabled the country to produce high-quality finished products using modern methods. This laid the foundation for Luxembourg’s steel industry, which helped the country to a new upswing.
The funds provided by the World Bank were a small fraction of the external finance needed for recovery, but they helped keep Luxembourg afloat until the Marshall Plan became operational in 1948. By 1974, Luxembourg had paid off its loan and never returned as an IBRD borrower. Today, Luxembourg is a key development partner to the World Bank, supporting the development priorities shared with the institution’s 188 other member countries including climate, debt, poverty reduction, health, education and private sector development.
As a donor Luxembourg is one of the very few countries that allocates 1% of its gross national income to Official Development Assistance. Working with the World Bank generates results that improve lives in low- and middle-income countries around the world.
Luxembourg’s World Bank Governor, Minister of Finance Yuriko Backes comments: "Over the past 75 years Luxembourg has evolved from a recipient country to a donor country that makes great efforts to support the World Bank's goals. Thanks to the economic boom, Luxembourg, a founding member of the European Union, while remaining a major steel producing country, has diversified its economy, and today hosts one of the world's leading financial centers with a strong focus on green, social and sustainable bonds and the second largest fund center in the world after the US.”
President of the World Bank Group, David Malpass said: “Amid the multiple crises facing Europe and the world, today's anniversary of the World Bank’s first and only loan to Luxembourg in 1947 for reconstruction and steel production reminds us how countries can recover in the aftermath of conflict. We have enjoyed a strong partnership with the Government of Luxembourg, and I am grateful for their sustained support to IDA, our fund for the poorest.”
Note to editors:
Representatives of both the World Bank and Luxembourg are available for media interviews.
About the first World Bank loan to Luxembourg
The IBRD loan to Luxembourg followed loans to France, Denmark and The Netherlands. It was in line with the World Bank’s mandate, agreed on by the 44 Allied nations including Luxembourg at the 1944 Bretton Woods Conference, to support European reconstruction and foster economic development, especially through lending for infrastructure.
Immediately following the war, Luxembourg and other European countries faced with the problem of reconstruction had to cover emergency expenditures by using domestic savings, expanding internal credit or by the sale of imported goods financed by foreign credits. Luxembourg had temporarily exhausted the possibility of using domestic savings. At the time, IBRD was an untested innovative experiment. In addition to this only being the institution’s fourth loan, the equivalent of nearly $1 million USD was also disbursed in Belgian francs, making this the Bank's first use of non-dollar capital in its lending operations.
The original Luxembourg loan application was initiated by Pierre Dupong, then President of the government and Minister of Finance. The so-called Steel Mill Railway Project loan was approved by the World Bank Directors on 28 August 1947. It was part of the Government of Luxembourg’s five-year Reconstruction Program, which included:
1) Reconstruction and repairs of privately owned dwellings, schools, churches, factories, stables, etc.;
2) Reconstruction of bridges;
3) Repair of roads and communications;
4) Repair of government buildings;
5) Repair of electrical installations;
6) Repair of water pipes and sewage systems;
7) Repair of damaged railroad bridges, tracks, etc.
The loan also financed the import of materials for housing reconstruction, rolling stock, as well as coke and coal.