The Caribbean Political Economy

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“The Bretton wood institutions have failed to keep the global economy stable and consequential efforts to stabalise and structurally adjust over the years have resulted in the deleterious effects particularly in the Caribbean business environment.” Critically discuss this above statement while suggesting a new role for these institutions towards promoting a more stable Caribbean business environment.

Name: reco holder
Tutor: Natalie Walthrust-Jones
Date: 19th MARCH 2013

The Bretton Woods system is a landmark system for monetary and exchange rate management established in 1944. The Bretton Woods Agreement was developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, from July 1 to July 22, 1944. Even as World War II raged on, 730 delegates from the 44 Allied nations attended the conference. Then in 1994, delegates from forty four countries assembled at Bretton Woods, New Hampshire, to negotiate a “new world order” governing exchange rates, foreign lending, and international trade. Among their most notable achievement was the Bretton Woods system of attached but pegged exchange rates and a new institution, the International Monetary Fund, to oversee the operation of exchange rates. The Bretton Woods system appeared as a golden age of exchange rate stability and rapid economic growth. The exchange rate of the major industrial countries remained fixed for extended periods. Inflation was moderate by subsequent standards, world trade expanded buoyantly and national income rose more rapidly than any comparable period before or since (Bordo, Eichengreen, 1993). Major outcomes of the Bretton Woods conference included the formation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development and, most importantly, the proposed introduction of an adjustable pegged foreign exchange rate system. Currencies were pegged to gold and the IMF was given the authority to intervene when an imbalance of payments arose (Kirsher, 1996). The Bretton Woods system had three main features they were 1) fixed exchange rates “parvalues” agreed to with the International Monetary Fund and changed only in consultation with it, 2) currencies that were freely convertible into each other or in gold, and 3) freedom from exchange restrictions, at least on current payments. Controls on capital movements were permitted, the conferees were eager to win the peace by planning and international monetary system which would be put in place when World War 1 was over. They wanted a system that would differ exclusively from the international monetary agreement that had prevailed between World War 1 and World War 2. Those arrangements had, in the 1920’s included a return to the gold standard that had prevailed before World War 1. Then with the failure of the attempt to return to a gold standard in the early 1930s, countries had turned to a variety of monetary arrangements, including fluctuating exchange rates, often involving competitive depreciation, the imposition of exchange controls, the suspension of convertibility, and bilateral and even exchange agreements. The conferees attributed much of the low levels off world trade and the low income levels of the great depression to these international monetary policies and protectionist trade policies. These policies had come to be labeled “beg-thy-neighbor” policies because they exported unemployment from one country to another. The purpose of the new Bretton Woods System was to foster high levels of international trade and investment which were regarded as the principle way to achieve full employment and economic development, being the prime objective of countries’ domestic policies (Kirsher, 1996). The...
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