Rethinking Bretton Woods | Wed, Sep 1, 2004
This briefing paper aims to provide an in-depth discussion of civil society perspectives on the issues involved in the expanding role of international financial institutions in trade- and investment-related activities. It also discusses some ideas for short- and long-term strategies to increase the ability of developing countries to manage relations with the international financial institutions in ways that enable them to grow and reduce poverty while meeting national development goals.
The paper places the issues in the context of the worldwide increasing income gap among and between countries, the increasing importance of trade in world GDP, the negative trends in capital flows to developing countries and the negative impacts that trade integration is having on the economies of a large number of developing countries, particularly the poorest nations.
The first part of the paper provides a situation analysis of emerging issues and policy dilemmas facing developing countries in the multilateral trade and finance system. It argues that the expanded involvement of the International Financial Institutions (IFIs) in trade-related activities has resulted in constraints to the policy space of the borrowing countries to develop their own national development strategies. It then goes on to discuss in precise details the main mechanisms by which this ‘coherence’ of trade and finance policy happens at the national, regional and global levels. The second section tackles the issue of the productive economy and highlights the inter-linkages between several trade and financial policies and how they impact on the productive sector. The third section explores the trade–finance intersection as it affects universal access to essential services in developing countries, focusing on particular features of privatisation and de-regulation programmes promoted by international financial institutions, the role of the General Agreement on Trade in Services (GATS), and how they compromise the ability of states to satisfy service provision needs. Finally, the fourth section addresses the issue of compensatory financing for trade-related losses and its limitations in the current world trading environment, and offers a critique of existing Bretton Woods Institutions (BWIs) policies and approaches in this area, including a critique of the International Monetary Fund’s (IMF’s) recently launched Trade Integration Mechanism.
The central argument underlying the paper is that the integration of trade and finance policy is necessary and important for realising effective solutions to developmental problems of developing countries. However, the current methods of integration are unlikely to resolve these issues. The approach of inter-linked trade and financial policy reforms being implemented by the BWI is dedicated to the promotion of trade liberalisation and binding or locking-in of previous liberalisation reforms. This is independent of the real and actual costs and impacts of such reforms on the evolution of developing countries’ economies. Furthermore, continuation of these reforms can only reinforce and exacerbate present trends of de-industrialisation, increasing food insecurity, rising external indebtedness, poverty and inequality. It is important, therefore, that finance ministers deepen their understanding of the coherence between the BWIs and World Trade Organisation (WTO) and begin to articulate a development-centred framework for integrating trade and financial policies. Part two of this paper discusses some tentative recommendations for such a framework.
For the full briefing paper click here.