How Bretton Woods reordered the world
New Internationalist magazine, July, 1994
1- The Bretton Woods Conference
In July 1944, as World War Two was drawing to a close, the
world's leading politicians mostly from Northern countries - gathered
to set forth notions of how to reorganize the world economy. For
the first time in human history almost universal institutions
- the International Monetary Fund (IMF), the World Bank and the
General Agreement on Tariffs and Trade (GATT) - were established
to solve global economic problems. The common view at the Conference
was that the depression of the 1 930s and the rise of fascism
could be traced to the collapse of international trade and isolationist
economic policies. The Conference rejected proposals by the eminent
British economist John Maynard Keynes that would have established
a world reserve currency administered by a central bank and created
a more stable and fair world economy by automatically recycling
trade surpluses to finance trade deficits. Keynes' notion did
not fit the interests of a US eager to take on the role of the
world's economic powerhouse. Instead the Conference opted for
a system based on the free movement of capital and goods with
the US dollar as the international currency. The Fund and the
Bank were limited to managing problems related to deficits and
to currency and capital shortages.
2 - Rebuilding Europe
One of the first tasks assigned to these new institutions
was to provide the capital to help put the war-ravaged European
economies back on their feet. Not only did they lack the resources
for such a massive undertaking but European finance ministries
balked at the harsh "conditionalities" that accompanied
support from the IMF as too great an infringement of their sovereign
right to shape their domestic economies. So the much looser Marshall
Plan was set up to provide US finance to rebuild Europe largely
through grants rather than loans. Southern countries now emerging
into independence did not fare so well - from the very beginning
any loan was accompanied by pressure to keep their economies completely
'open' to foreign goods and capital. In the late 1 950s the World
Bank was pressured into setting up the International Development
Association (IDA) this would provide 'soft loans' and so head
off attempts by the new countries of the Third World to set up
an independent funding agency under UN auspices.
3 - New International Economic Order
By the early 1960s the South had started demanding a better
deal. Rallying in such organizations as the Non-Aligned Movement
and the Group of 77, they created the United Nations Conference
on Trade and Development (UNCTAD) where they argued for fairer
terms of trade and more liberal terms for financing development.
The North responded with pious declarations of its good intentions
- but also with a hard nosed insistence that the proper forum
for any economic forum continued to be the Bretton Woods institutions
where they held the balance of power. By the late 1960s, however,
the Bretton Woods dream of a stable monetary system of fixed exchange
rates with the US dollar as the only international currency was
collapsing under the strain of US trade and budgetary deficits.
A guarded optimism took hold in the South fueled by moderately
high growth rates and a boom in the price of Third World produced
primary commodities, particularly oil. This came to a head in
1974 with the declaration of principles for a New International
Economic Order. The response to these sweeping demands for change
was a few tinkering, inconsequential reforms.
4 - The Debt Crisis
The windfall surpluses accruing to the oil producing countries
of OPEC during the 1970s - $310 billion for the period of 1972
- 1977 alone - created a massive recycling problem. Much of this
money went into Northern commercial banks who turned around and
loaned it to non-oil producing Third World governments desperate
to pay escalating fuel bills and fund their development goals.
The debt of the non-oil-producing Third World increased five fold
between 1973 and 1982, reaching a staggering $612 billion, and
the high interest rates of the mid-1980s further exacerbated the
problem. Much of this loan money was squandered on ill considered
projects or simply siphoned off by Third World elites into personal
accounts in the same Northern banks that had made the original
loans. Cash strapped countries like Peru and Mexico were unable
even to pay the interest due on their debts. Northern politicians
and bankers began to get nervous that the sheer volume of unpayable
loans would undermine the world financial system. They turned
to the World Bank and the IMF, who were to restructure Third World
economies so they could meet their debt obligations.
5 - Rollback
The Bank and the Fund have made full use of the new leverage
over Third World economies that accrued to them during the debt
crisis. The right wing economic views made popular by the Reagan-
and Thatcherites became the reigning economic orthodoxy at the
Bank and the IMF. They launched a policy to 'structurally adjust'
the Third World by deflating economies and demanding a withdrawal
of government not only from public enterprise but also from compassionate
support of the basic health and welfare of the most vulnerable.
Exports to earn foreign exchange were privileged over almost all
production of food and other goods for domestic use. This restructuring
was highly successful from the point of view of the private banks
who got $178 billion out of the South between 1984 and 1990 alone.
Yet Third World debt continued to grow, reaching $1,300 billion
by 1992. Much of this debt has shifted particularly in the case
of Africa from private banks to the IMF and the World Bank themselves.
6 - The Resistance
The stark fact that the Fund and the Bank now operate with
reverse capital flows - in other words they take more money out
of the Third World than they put back in - is sobering for those
who believed these institutions were there to help. Peoples of
the Third World are resisting structural adjustment either through
street riots or less confrontational politics. Protest too is
coming from the four million people uprooted or to be uprooted
by World Bank mega-projects, particularly the building of large
dams. Rejection of all things Western is on the rise. Fundamentalism
and the politics of ethnic exclusion (from Somalia to India) are
turning political costs into military ones. And the Bretton Woods
institutions themselves are coming under direct pressure from
community activists and environmentalists calling for either their
reform or outright abolition. After 50 years the decisions reached
at Bretton Woods need some fundamental rethinking.
IMF,
World Bank, Structural Adjustment