The Bretton Wood Institutions - Essay Example

Management Topic: The Bretton Wood s are referred to as monetary management s. The planners of BrettonWood decided to come up with a system of rules, procedures and institutions that will be able to regulate the global economy of the international monetary system. As a result of the above mentioned, the inception of World Bank Group and International Monetary Fund (IMF) came into existence. The development of both IMF and the World Bank were based on key ideas of three experts: John Maynard Keynes, a British economist, and Henry Morganthau, the US Treasury Secretary as well as Harry Dexter White who was his chief economic advisor. These institutions got established during a meeting of 43 countries in Bretton Woods, located in New Hampshire in the United States in July 1944. The main aims of these institutions based on the ideas of the trio were to assist in rebuilding the crushed post-war economy as well as promoting international economic cooperation. Initially, the Bretton Woods agreement had inclusions of plans of the International Trade Organization. However, these plans were inactive until the creation of the World Trade Organization (WTO) that occurred in early 1990s (Kenen, 1994, p 17.) There has been a lot of scrutiny that has been done ever since the establishment of the Bretton Wood institutions until now. Over the years and mostly within the last two decades, the number of critics has greatly risen. The criticisms of the International Monetary Fund and the World Bank are based on a variety of issues. However, they are usually centred on concerns about the approaches that are used by both institutions in setting up their policies as well as the way in which they are governed. The criticisms are also based on the economic and social impact that the policies created have on the population of the member states based on the Bretton Wood institutions and the accountability of the impacts (Haq, 1995, p 34). Critics of the IMF and the World Bank have been concerned with the conditionalities that have imposed on the borrower states. The IMF and the World Bank have often attach their loan conditionalities based on the Washington consensus which focuses on the liberalisation of trade, financial and investment sector, privatisation and deregulation of nationalised industries. Most of the conditionalities are created with no due consideration of the borrower countries and thus the recommendations made by IMF and the World Bank has, over the past decades, failed to resolve the economic problems that are in most of their member states. The main aim of the World Bank from its inception until now has been to improve the ability of countries towards trade by lending out money to impoverished and war-ravaged countries in order for them to carry out reconstruction and development projects. World Bank simply promotes long term poverty reduction and economic development by providing either financial or technical support to help the countries involved in implementing specific projects or in reforming particular sectors of their economy (Bordo, 1993, p 32). For instance, some of the projects associated with World Bank aid include protecting the environment, fighting disease, building health care and schools and providing water as well as electricity. Assistance provided by World Bank is usually long-term. The funding involved is contributed by both the member country and through bond issuance. All the staffs that are associated with World Bank are usually specialists in specific sectors, techniques or issues. Critics of the World Bank are quite concerned about the role that is being played by the Bretton Woods institution towards shaping the economy and the development dissertation throughout the training, research and publishing of activities. It is well noted that the World Bank is an expert when it comes to matters of economic development and financial regulation but despite this their views as well as prescriptions have been thought as factors that may eliminate and undermine alternative perspectives with regards to development (Kapur, 1997, p 22). Additionally, there are other criticisms against the World Bank governance structures that are dominated by industrialised countries. Most of the decisions are often made and also the policies are implemented by the leading industrialized countries without any consideration of the poor and developing countries mainly due to the fact that they are a representation of the larger donors (Bossche, 2005, p 65). Criticisms regarding global governance have received a lot of attention since the 1990s. After the end of the cold war, it led to the increase of the expectations set on the international organizations as well as on the United Nations. The hastened globalization stirred up the relationship among the trends in the institutional frameworks and the world economy through which it is regulated. A rise has been noted on the incapability of most of the countries in supporting themselves. However, based on the idea of world government and Westphalian world of the sovereign states the issue of global government is quite difficult to analyse (McLellan, 2002, p 43). The issue of global governance is best addressed based on the economic policy making. The three Bretton institutions have been made to reform their policies and practices based on the changes of the world economy. The Bretton institutions have also been drawn to other criticisms because of their association regarding matters on neo liberal globalization. Even though majority of the supporters claim that the Bretton institutions have contributed greatly to the growth of the economy, critics still argue that the institutions have assisted in producing unstable financial order and deepening the global disparities (Stiglitz, 2002, p 77) In 2007 the global financial crisis experienced raised issues of concerns regarding the effectiveness of the global economic governance which led to the demand of reforms. Despite the demand for reforms, there are major obstacles that are on the way as well as the dominance that still exists in most of the countries on the diffusion of the global power and the neoliberal principles. Based on the internet discussion sponsored by World Bank on globalization, no clear definition was given on its meaning but an assumption was made that it is meant to improve the global economy of the poor (Stiglitz, 2007, p 83). The gap that exists between the global economy and the legacy of the Bretton Wood institutions of the modern world is definitely growing. These changes are mainly driven by the lower costs and rapid advances in information flows, communication and travel. The policy that has officially been created has assisted in the reduction of barriers that hinder the movement of goods on various national boundaries. As a result there has been intensive and intrusive economic interaction as well as immense growth in the capital markets. However, the issue of globalization has brought some challenges such as the rapid flow of the investments that mainly move in and out of the countries. The sentiments behind this were the reason for the Asian and Mexican financial crisis. Domestic discontent regarding globalization has interfered with legislations that would have granted some of the countries the opportunity to negotiate some trade arrangements. The record that has been set by World Bank in the past two years with regards to financing socially and environmentally destructive problems as well as failed programs that are mainly insensitive to the local realities has been a serious problem (Stiglitz, 2002, p 80). Over the past two decades most of the environmental groups have argued that majority of the World Bank’s projects have been disastrous to the environment. World Bank usually finances projects such as open pits mines, dams as well as road constructions. In most cases all these projects have proven to be economically unsound and thus they have destroyed the prinstine rainforests, estuaries and rivers and they have also interrupted the livelihood of the millions of people in the third world and developing countries. The projects funded by World Bank have forcefully resettled an estimated 2.5 million in 1986 and about 2.5 million alone in 2000. On the other hand IMF main focus over the years has been to provide technical advice and policy advice and also to promote the international monetary cooperation so as to help the member countries in building and maintaining strong economies. The International Monetary Fund makes loans and assists countries in designing policy programs that solve any problems associated with balance of payments when the net international payments cannot be met. Loans in this context are either short or medium term and are mainly funded by the contributions made by the member countries. All staff that work with IMF are usually economists that have a wide range of experience in financial policies and macroeconomics. It is well noted that the World Bank and IMF often collaborate with each other to assist the member states on various initiatives. The terms of their cooperation were addressed in 1989 in a concordat in order to ensure that there will be effective collaboration in the areas where shared responsibility is required. It is noted that the capital investments are controlled by the three global governance Bretton institutions. According to Peet, it is the political failures that made the International Monetary Fund to evolve from an institution known to stabilize funds to that which focuses on reducing poverty. For instance, the establishment of the poverty and growth facility which replaced structural adjustments facility that took place in 1999 is to mainly provide low interest loans for the member countries with lowest income with the cost of the borrowers having been subsided (Peet, 2003 p. 73). Peet has criticized how the impositions of the conditional loans by IMF have brought a lot of social consequences to the developing countries. It is this consequences referred to by Peet that have imposed the austerity programs which have cut down the government services that have kept the issue of food prices low (Peet, 2003 p 67). The economic policy is usually imposed by some of the 1000 experts and it has failed to improve the living conditions of the poor. It is noted that some of Peet criticisms regarding the Bretton institutions are biased. He claims that the agreements made by Bretton institutions were made to favour America, Canada and British behind closed doors (Peet, 2008, p 60). Peet mainly argues that the financial crises experienced by countries are as a result of the actions of IMF. The IMF reforms mainly caused the integration with the international markets and as a result this caused the financial crisis (Peet, 2008, p 93). The financial liberalization which had occurred contributed to the massive flow of capital moving in and out of East Asian economies (Peet, 2008 p 92). According to Ravenhill, debt is referred to as an efficient tool. Debt allows people and countries to be able to access other countries and people’s raw material as well as infrastructure based on cheap affordable terms. Most of the countries are competing within the shrinking export markets and as a result of these they can only export less products based on lack of cash to enable them to invest in diversification and also because of Northern protectionism. The term market saturation simply ensues the reducing exporters’ income resulting to a bare minimum and the North is left to enjoy the savings (Ravenhill, 2008, p 100). However, the IMF does not seem to acknowledge that investing in a well-fed, literate and healthy population is one of the most intelligent economic choices that can be made by a country (Truman, 2006, p 55). Majority of the poor and developing countries are in poverty and debt partly because of the policies of the Bretton institutions: the World Bank and International Monetary Funds (IMF). Some of the critics have focussed solely on this aspect of World Bank’s policies regarding structural adjustments that were designed to help out countries in settling their debts problems and balance of payments. As a result the groups that have raised the arguments have formed a campaign that will call for the World Bank to reform most of their policies. IMF has also played a significant role in the impoverishment of the developing countries. Critics have argued that IMF has greatly drifted from its original mission of providing financial assistance to the member states in order to lessen the short term crises concerning balance of payments as well as stabilizing the exchange rates (Drischler & Benjenk, 1988, p 53). In order to deal with most of the criticisms put across, Bretton woods institutions, mainly the International Monetary Fund and World Bank decided to change their lending strategy development partnership from a conditionality-based form. Even though the new strategy is a decade old it has helped to channel the grievances of the critics on a common platform. IMF and the World Bank have directed their focus to the development partnership approach through some lending initiatives namely Heavily Indebted Poor Countries Initiatives (HIPC-Initiative) and Output-Based Aid (OBA). Both initiatives allow IMF and the World Bank to be able to control political arena among their borrower countries. As a result based on the popularization of the development partnerships, Bretton Wood institutions have been able to change their old conditions through a disguise by use of the new international aid form. Despite all these changes, the addiction of Bretton institutions on political powers must be addressed before the initiatives are achieved successfully (Paloni & Zanardi, p24). Bretton Wood plans regarding international trade came into being in 1994 when the World Trade Organization (WTO) was created. It is after its inception that a stage was set in order to stimulate economic growth, to promote commercial relations as well as support sustainable development. Therefore, the aim of WTO is to liberalise rade among the member states. Its creation has created a forum that enables the countries involved to negotiate the various trade agreements in existence and also those that are proposed. The economy of the member states with regards to trade issues have been highly monitored by the World Trade Organization. The meeting held in Seattle by the World Trade Organization in November led to the expansion of the work on trade by the World Bank. A statement from the World Bank, International Monetary Fund (IMF) and World Trade Organization (WTO) vowed to establish a strong association between the three institutions that would enhance the growth of the developing countries and also increase unity of the economic policy making. The three Bretton institutions are trying to establish an international iron cage that will make the countries involved to follow the liberalisation policies. On the issue of liberalisation critics have argued that the World Trade Organization may enforce liberalization and this may result to threats regarding democratic processes hence placing the burden on those countries that are unable to represent themselves (Macrory, 2005, p31). The AIDS war, which started in South Africa called for the need of universal access to the anti-viral drugs. Most of the drugs were found in the north while most people suffering from Aids were in the south. Majority of the pharmaceutical companies sued the South African government based on the defiance of their patents but they dropped the proceedings. Their main aim was to ensure that the South Africa’s law on the supply of the drugs in the country violated the trade-related aspects of intellectual property rights (trips) agreements that were under the sponsorships of the WTO. It is noted that WTO is an organization that deals with all the major rules on trade. All member countries must take part in specific agreements and among this is that of TRIPS which has had and still continues to have a major impact on access to medicines and the pharmaceutical sector (Legrain, 2004, p257). Arguments have been brought up that the issue of data exclusivity should be a major requirement in the TRIPS Agreement. Data exclusivity mainly grants exclusive rights to the originator over the test data as well as preventing regulatory authorities against depending on the test data in order to register substitutes (Legrain, 2004, p 260). The programs set up by the Bretton institutions over the past two decades have been highly criticized due to the fact that many critics have proven that the programs leads to poverty rather than economic growth of the member states. This assumption has clearly illustrated the dependency of the third world and the developing countries on the richer countries. This is despite the claim by the World Bank and IMF that they will reduce poverty. The World Bank’s lack of achievement in their mission of alleviating poverty has now been recognized by the Canadian auditor general and also by the senior most level at the World Bank itself. Evidence regarding portfolio and project failures has led to an increase in the call of a detailed review of IMF and the World Bank with the recent call being addressed by the G7 countries at the Naples Summit in 1994. Reforms on the major fundamentals of Bretton Wood is greatly needed (Nayyar, 2002, p56). With regards to the issues concerning reforms, it is now clearly seen that there is need for Bretton institutions to undertake a comprehensive review of the fundamental practices and policies, including the programmes and projects and also including a full social, financial and ecological risk assessment. The review to be conducted should be widely based including the developing countries, the industrialized countries as well as non-governmental organizations. In order for the three institutions to continue successfully there is need for mitigating most of the impacts so as to clean up the messes and also for the lending of social safety. All these changes will improve the image of the institutions with regards to the global economy platform References Bossche, P.V. (2005).The law and policy of World Trade Organization.Cambridge, Cambridge University Press. Bordo, M.D. (1993). A retrospective on the Bretton Woods system lessons for international monetary reform. Chicago. Drischler, A., & Benjenk, M. (1988). US policy toward the Bretton Woods Institutions. Washington, DC. Haq, M. (1995). The UN and Bretton Woods Institutions. Basinstoke, Hampshire Kapur, D. (1997). The World Bank. Washington, DC, Brookings Inst. Press. Kenen, P. (1994). Managing the world economy. Washington, DC. Legrain, P. (2004). Patently Wrong: How Global Patent Laws harm the poor and the sick. P254-269 McLellan, E.P. (2002).The World Bank: overview and current issues. New York, Nova Science Publishers. Macrory, P. (2005).The World Trade Organization. New York. Nayyar, D. (2002). Governing globalization issues and institutions. Ravenhill, J. (2008). Global political economy. Oxford, Oxford University Press. Paloni, A., & Zanardi, M, (2005). The IMF, World Bank and Policy Reform. London, Routedge. Peet, R. (2007). Geography of power: making global economic policy. London, Zed Books. Peet, R. (2003). Unholy Trinity the IMF, World Bank and WTO. London, Zed Books. Stiglitz, J.E. (2002). Globalization and its discontents. London, Penguin. Stiglitz, J.E. (2007). Making Globalization Work: The Next Steps to Global Justice. London, Penguin. Truman, E.M. (2006). A strategy for IMF reform. Washington, DC, Institute for international Economics. Read More