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Long Due Reform? The International Monetary Fund, the World Bank, and Global Economic Governance 60 Years Later (2005)

Rethinking Bretton Woods | Thu, Aug 4, 2005

The International Financial Institutions (IFIs) are key players within the current architecture of global governance. Sixty years after the creation of the International Monetary Fund (IMF) and the World Bank in Bretton Woods, New Hampshire, their role and their relationship with other key institutions such as the UN are being called into question more than ever before.  This paper from Coopération Internationale pour le Développement et la Solidarité (CIDSE) examines the Bretton Woods Institutions 60 years later.

Introduction1

The International Financial Institutions (IFIs) are key players within the current architecture of global governance. Sixty years after the creation of the International Monetary Fund (IMF) and the World Bank in Bretton Woods, New Hampshire, their role and their relationship with other key institutions such as the UN are being called into question more than ever before.

In this, the sixtieth year of the existence of the IFIs, CIDSE, as in the past, continues to call for serious reconsideration of their role in a global governance architecture that, we hold, must be geared towards the promotion of the global common good. As an international Catholic development network, our perspective is centred around our guiding values and principles, particularly drawn from Catholic Social Teaching. Many of these principles and values provide critical insights for a framework of reform for the IFIs. The principle of solidarity leads us to emphasise that the IFIs are a part of an interdependent human family and that working toward the common good benefits everyone. The principle of subsidiarity would affirm that responsibility for decisions and actions lies best at the level closest to the problem that is able to respond to it effectively and therefore that policy decisions must be attentive to local realities. Finally, adherence to the principle of the preferential option for the poor would ensure that the purpose of IFI reform is poverty eradication and equitable development.

The founding mandates of the IMF and World Bank specified very different roles for the institutions than those that have developed in the sixty years of their existence, especially in the years since the debt crisis erupted in 1981. The IMF's original task was to stabilise the system of fixed exchange rates, which was in existence until 1973, using temporary cash injections in order to overcome financial crises. And the World Bank's mandate, after helping to promote the economic reconstruction of Europe and Japan following the end of the Second World War, was to help finance the economic and social development of a rapidly expanding number of independent developing countries.

Over time, the World Bank and IMF have become the world's two most powerful financial institutions. Through the loans they make to poor countries and the conditions attached to these, they have come to control public policy in large areas of the developing world which are thus made accountable to the IFIs rather than to their own citizens and communities. The adjustment policies that these international financial institutions require poor countries to adopt have resulted in social upheaval and poverty more often than they have led to economic development. At the global level, the IFIs have failed to adequately respond to global financial crises which have seriously impacted the world economy. Neither have they been able to devise innovative and equitable instruments for responding to these crises. Despite these failures, the IFIs continue to push standard policy approaches. Internally, the IFIs do not adequately represent all their member countries, nor do they make decisions in a transparent way, contributing to the consolidation of power in the hands of a few of the world's richest countries. Furthermore, the IFIs are in a permanent state of conflict-ofinterest due to their dual roles as both creditors and policy advisers.

Numerous voices from a range of quarters have recently joined civil society organizations in documenting problems within the IFIs. The Meltzer Report2 pointed to the problems of poor performance within the IFIs and the blurring of functions between them. Liberal voices, including prominent economists formerly employed by the IFIs such as Joseph Stiglitz, have critiqued the structure and interests operating within them. The UN Secretary General stressed that 'significant steps are needed to overcome the perception among developing countries that they are underrepresented in both bodies (IMF and World Bank), which tends to put their [IFI's] legitimacy in doubt'.3 A number of proposals have been suggested to ensure the IFIs would play a positive role in democratising global governance, rather than undermine it. These proposals have been put forth in international arenas by NGOs, the UN, and both developing and developed countries.4

In analysing the current role of the IFIs in relation to their contribution to global governance, three critical clusters of reform can be singled out, each one responding to a particular objective: I) achieving adequate representation, accountability and transparency, II) promoting a plurality of approaches to equitable development and III) ensuring their role in the system of global institutions respects the primacy of international human rights law and equitable economic and social development.

  1. This paper draws heavily on Working Towards Progressive Global Governance, CIDSE/CI Background Paper. May
  2. 2004. Pp. 28-32. It has been prepared by Aldo Caliari, Center of Concern, and includes contributions from members of the CIDSE/CI Working Group on Resources for Development.
  3. Meltzer 2000.
  4. United Nations 2005, para. 70.
  5. See e.g. Buira 2002; Caliari 2003; Nayyar and Court 2002; Woods 2000. See also Group of 24 2004 (calling for a new formula to calculate voting quotas which would take into account the vulnerabilities of developing countries, in particular sub-Saharan countries, and correctly reflecting the relative economic position of countries in the world economy by computing gross national income on a purchasing power parity basis).

Click here for the full paper.