Bretton Woods Institutions Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The World Bank and the International Monetary Fund (IMF) are together known as the Bretton Woods institutions. They were created at a meeting of 44 countries in Bretton Woods, New Hampshire, in July 1944. Their goals were to assist in rebuilding the shattered postwar economy and to promote international economic cooperation. The original Bretton Woods Accord also mandated a plan to create an international trade organization, but this was not realized until the formation of the World Trade Organization (WTO) in the early 1990s.

The formation of these two “sister institutions” came at the end of World War II, and was based on the initiatives of a trio of key experts—U.S. Treasury Secretary Henry Morgenthau, Jr., his chief economic adviser Harry Dexter White, and the noted British economist John Maynard Keynes. The goal was to establish a postwar economic order based on consensual decision making and cooperation in the realm of trade and economic relations. A multilateral framework was envisioned to overcome the destabilizing effects of the previous global economic depression and trade wars.

World Bank Group

The goal of the World Bank Group (WBG) was to improve the capacities of countries to trade by lending money to war-ravaged and impoverished countries for reconstruction and development projects. WBG currently lends over $20 billion annually to developing economies worldwide, and is made up of two main institutions—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—and three subsidiary organizations: the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Center for Settlement Investments Disputes (ICSID). The WBG comprises 185 member countries and is based in Washington, D.C. Membership varies across the institutions—all members of the World Bank are members of the IMF, while IDA has 116 members, the IFC has 174; MIGA has 154, and ICSID has 133 members.

The president of WBG (Robert Zoellick as of June 2008) is the president of all five WBG institutions as well as chairman of the board of the 24 executive directors—five of whom are permanent and represent the United States, the United Kingdom, France, Germany, and Japan, while the remaining 19 are elected by groups of members every two years. The U.S. government has 20 percent of the vote and is represented by a single executive director. In contrast, the 47 sub-Saha-ran African countries have two executive directors and hold only 7 percent of the votes between them.

Each member state’s vote is tied to its level of financial contribution. An 85 percent majority vote is required to pass any supermajority, which gives the United States veto power in all but one of the WBG institutions, the IDA, where it has approximately 13 percent of the votes.

International Monetary Fund

The IMF’s original goal was threefold: To promote international monetary objectives, to facilitate the expansion of international trade, and to promote exchange rate stability. The IMF provides several types of loans to member countries. Concessional loans are granted to low-income countries at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF), while nonconcessional loans are offered with a market-based interest rate through five mechanisms: the Stand-By Arrangements (SBA); Extended Fund Facility (EFF); Supplemental Reserve Facility (SRF); Contingent Credit Lines (CCL); and the Compensatory Financing Facility (CCF).

Members facing a balance of payments problem can immediately withdraw up to 25 percent of their quota in gold or convertible currency. They are further allowed to borrow up to three times their paid-in quota, if the original amount is deemed to be insufficient.

IMF loans are of two major types: Under the Standby Arrangements, member countries are allowed to borrow for a one-to-two-year period to support macroeconomic stabilization programs, and repayments are made within three to five years. The longer-term loan is known as the Extended Fund Facility; countries are allowed to borrow for three to four years and repay the loans five to 10 years down the road.

Criticisms

The criticisms of these two institutions mostly focus on the social and economic impact of their policies on the people of the countries that avail themselves of financial assistance from them. There are questions about governance structures, which are dominated by developed, industrialized countries. Some are also apprehensive about their role in shaping the discourse—through their own research and training—on financial regulation and economic development without participation from poorer and developing economies.

Others have raised the issue of conditions placed by these institutions, which is likely to reduce the authority of the state to govern its own economic policies because these are predetermined under the structural adjustment packages set by Washington-based financial institutions in which they hold insignificant power. Many infrastructural projects financed by the World Bank, such as constructing dams for hydro-electric power, have resulted in the displacement of indigenous people of the area. Finally, there are also concerns that these institutions, in working with the private sector, may undermine the role of the state as the primary provider of essential goods and services, such as healthcare and education, resulting in the underperformance of such services in countries badly in need of them.

Bibliography:

Bretton Woods Project, www.brettonwoods project.org (cited March 2009);
Ariel Buira, ed., Reforming the Governance of the IMF and the World Bank (Anthem Press, 2005);
International Monetary Fund, www.imf.org (cited June, 2008);
Strom Thacker, “The High Politics of IMF Lending,” World Politics (v.52/1, 1999);
World Bank, www.worldbank.org (cited March 2009);
Ngaire Woods, The Globalizers: The IMF, the World Bank, and Their Borrowers (Cornell University Press, 2006).

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