3. Critically evaluate the debates surrounding the continuity of Bretton Woods’s institutions. Which of these institutions would you recommend to be discontinued? Justify your choice.
While preparing to rebuild the international economic system after WWII, 730 delegates of the 44 allied nations met in New Hampshire, United States, to form the Bretton Woods agreement. The aim was to set up rules and regulations to stabilize the global monetary system and ensure the free movement of capital goods through a global market. The agreement established two regulatory institutions, firstly the International Monetary Fund (IMF) to control the exchange rates and bridge temporary imbalances of payment. Secondly, the International Bank of Reconstruction and Development (IBRD), later known as the World Bank, which was founded to finance the reconstruction of post war Europe. In 1947 the Havana Charter proposed a third regulatory institution, the International Trade Organization (ITO) that transformed into the World Trade Organization (WTO). This essay will critically evaluate the performance of the three Bretton Wood´s institutions, giving recommendations to operational changes for the IMF and the WTO, and argue to discontinue the WB as it operates currently.
The IMF was one of the key institutions that stabilized the world economy after WWII. Its initial goal was to regulate and stabilize exchange rates and assists the reconstruction of the world’s international payment system. One of the key objectives of the IMF was to prevent the devaluation cycle. Through joining the IMF in the post War period, countries surrendered their economic rights, especially on setting its exchange rate, in return they were guarantied “exchange stability, avoidance of competitive exchange depreciation and a liberal regime of international repayments” (deVries, 1986). Essentially the original conception behind the IMF, was to control the behaviour of countries that joined the IMF, “spelled out in a code that was administered by an international institution”.
The 1970s oil crisis was a turning point for the role that the IMF played. Third world countries were most affected by the oil crisis, since their economies became dependent on oil and the increasing prices accumulated large amounts of debt. The IMF agreed to lend money, and rose to ”new prominence, with new functions and greater powers of control over even more dependent countries” (Peet, 2009). The main change in the IMFs mission, is the shift of lending to first world countries, in order to reconstruct the world payment system using expansionary policies, to lending to third world countries, accompanied by “conditionality’s”, which restrict countries fiscal and monetary policies. Anne Kruger, managing director of the IMF, said; “Much of what we do is very different from the way the Fund operated in those early years. It has to be. The world economy has changed beyond recognition. But we still apply those same core principles, international financial stability and the prevention of crises” (Kruger 2004)
The IMF became subject to severe criticism, one of the main critics is Joseph Stiglitz. He argued that the IMF has failed its mission to sustain global economic stability. The main point of his argument is that the IMF has diverged its initial mission “based on the assumption that markets did not always work perfectly, that is, there were times when intervention might be needed to secure a stable global economic order “(Stiglitz, 2002) Now, he argues, the IMF operates largely on the untenable ideology that markets should be left to operate on their own, with no need of intervention. The Washington Consensus largely influenced the change in economic policies of the IMF. The Consensus was based on Latin American countries, were growth was not sustained. The belief of the Washington Consensus was that this had happened as a result of excessive government intervention in the economy. The...