International Institutions and Realism

Topics: World Trade Organization, International Monetary Fund, International trade Pages: 7 (2386 words) Published: November 29, 2012
Becky, Tam Hing Lui
Prof. Chan Ding Ding
GPEC 5002 Challenges to the Global System: Insecurity of the World 17 November 2012


Nations call for cooperation especially during and after crisis. One example was the Bretton Wood system created in 1944, with the purpose to revive the global economy after the serious damage in WWII. After the 2008 financial crisis, nations again asked for more international regulations and monitoring on the global financial system and suggested the “Bretton Wood II”. When we step back and think again, does the international regime facilitate cooperation between nations to solve global issues?

The school of Liberalism puts more emphasis on the role of international institutions. Robert Keohane defined institutions as "persistent and connected sets of rules, both formal and informal, that prescribe behavioral roles, constrain activity, and shape expectations" (1). By definition, International Monetary Fund (IMF), World Bank, World Trade Organization (WTO) are formal institution while Bretton Wood Agreement, General Agreement on Tariffs and Trade (GATT) are informal. Under the anarchy environment in the international platform, it is possible to facilitate cooperation through the establishment of international organizations by two specific features: Centralization and Independence (2). It is the independence and neutral characteristic of the international organizations that enhance the legitimacy of its actions, causing states willing to gather together and authorize the international organizations to centralize the activities and ultimately achieve cooperation. This reduces transaction costs and increase efficiency. Institutions coordinate activities including setting up forums and conferences, managing substantive operations, norm elaboration, neutral information provider, acting as trustee/arbiter, intervention and enforcement (2). We have identified 5 signature international institutions (IMF, World Bank, Bretton Wood System, GATT, WTO) as examples below to illustrate how the conduct of the above mentioned activities through the international organizations facilitate cooperation in the modern history.

(I) IMF, World Bank, the Bretton Wood System and GATT
Both IMF and World Bank were established since the Bretton Wood system began. After WWII, countries suffered from poor economy as global production and trade were dampened during the war period. During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts proved to be self-defeating. World trade declined sharply, and employment and living standards plummeted in many countries (3). There was strong common interest amongst the states to boost up the economy. To facilitate trade and production, a stable monetary system is necessary and this is where the Bretton Wood system began. The US took the lead to stabilize the international monetary system by pegging USD into gold at a fixed rate (USD35 / ounce of gold) while the remaining 44 countries agreed to keep their exchange rates pegged to USD at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement. The IMF therefore became the independent clearing house of the balance of payments and to ensure the exchange rate mechanism worked as specified. International Bank for Reconstruction and Development (IBRD), now the World Bank Group underwrite private loans to stimulate economy. Both the organizations obtained the legitimacy from their independence and neutrality hence was able to manage the substantive operations between states efficiently and...
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