Bretton Woods ConferenceBretton Woods Conference

: A Vendetta between : A Vendetta between developed and developing developed and developing

nations?nations?

"The economic health of every country is a proper matter of concern to all its neighbors, near and far." — U.S. President Franklin D. Roosevelt at the opening of Bretton Woods

What Was Bretton Woods?What Was Bretton Woods?

In the aftermath of WWII (in Europe) In the aftermath of WWII (in Europe) The United Nations Monetary and The United Nations Monetary and Financial Conference commonly Financial Conference commonly known as Bretton Woods conference, known as Bretton Woods conference, was a gathering of 730 delegates was a gathering of 730 delegates from all 44 Allied nations. from all 44 Allied nations.

Main goal was to regulate the Main goal was to regulate the international monetary and financial.international monetary and financial.

Mount Washington Hotel, situated Mount Washington Hotel, situated in Bretton Woods, New Hampshire in Bretton Woods, New Hampshire

RationalRational

In 1944 as well as today historians In 1944 as well as today historians and economists often argue and economists often argue economics played a vital role in economics played a vital role in causing WWII. causing WWII.

Argument-Argument-• WWI set the conditions to ensure a WWI set the conditions to ensure a

second World War.second World War.• Extreme governments circa 1932 rose to Extreme governments circa 1932 rose to

power due to Global Great Depression.power due to Global Great Depression.

Rational ContinuedRational Continued

Fear over Great DepressionFear over Great Depression• Many nations wanted protection from a Many nations wanted protection from a

repeatrepeat ““Linked economies don’t go to war”Linked economies don’t go to war” Support for Govt. intervention in Support for Govt. intervention in

Economic development.Economic development. Tools to reconstruct postwar Europe.Tools to reconstruct postwar Europe.

John Maynard KeynesJohn Maynard Keynes

A British economist whose ideas have had A British economist whose ideas have had a major impact on modern economic and a major impact on modern economic and political theory. political theory.

He advocated interventionist government He advocated interventionist government policypolicy• the use fiscal and monetary measures to the use fiscal and monetary measures to

mitigate the adverse effects of economic mitigate the adverse effects of economic recessions, depressions and booms. recessions, depressions and booms.

His ideas are the basis for the school of His ideas are the basis for the school of thought known as Keynesian economics. thought known as Keynesian economics.

Keynesian economicsKeynesian economics Keynes's theory suggested that active Keynes's theory suggested that active

government policy could be effective in government policy could be effective in managing the economy. managing the economy.

Keynes advocated policies which acted against Keynes advocated policies which acted against the tide of the business cycle: the tide of the business cycle: • deficit spending when a nation's economy suffers deficit spending when a nation's economy suffers

from recession or when recovery is long-delayed from recession or when recovery is long-delayed and unemployment is persistently highand unemployment is persistently high

• and the suppression of inflation in boom times by and the suppression of inflation in boom times by either increasing taxes or cutting back on either increasing taxes or cutting back on government outlays.government outlays.

Governments should solve problems in the Governments should solve problems in the short run rather than waiting for market forces,short run rather than waiting for market forces,• "in the long run, we are all dead." "in the long run, we are all dead."

Milton FriedmanMilton Friedman An American economist, statistician and public An American economist, statistician and public

intellectual, and a recipient of the Nobel intellectual, and a recipient of the Nobel Memorial Prize in Economic Sciences. Memorial Prize in Economic Sciences.

A global public followed his restatement of a A global public followed his restatement of a political philosophy that insisted on minimizing political philosophy that insisted on minimizing the role of government in favor of the private the role of government in favor of the private sector. sector.

As a leader of the Chicago School of economics, As a leader of the Chicago School of economics, he had a widespread influence in shaping the he had a widespread influence in shaping the research agenda of the entire profession. research agenda of the entire profession.

The EconomistThe Economist hailed him as "the most hailed him as "the most influential economist of the second half of the influential economist of the second half of the 20th century…possibly of all of it".20th century…possibly of all of it".

MonetarismMonetarism

Favors Lassez-Faire attitude between Favors Lassez-Faire attitude between Government and the private sector. Government and the private sector.

Generally supports low taxation, Generally supports low taxation, privatization of public holdings and privatization of public holdings and deregulation. deregulation.

Freidman’s logic was the freer the Freidman’s logic was the freer the market the freer the people.market the freer the people.

Main Conference AgreementsMain Conference Agreements Formation of the IMF and the IBRD (World Formation of the IMF and the IBRD (World

Bank). Bank). Adjustably pegged foreign exchange Adjustably pegged foreign exchange

market rate system:market rate system:• The exchange rates were fixed, with the The exchange rates were fixed, with the

provision of changing them if necessary. provision of changing them if necessary. Currencies were required to be convertible Currencies were required to be convertible

for trade related and other current account for trade related and other current account transactions. transactions.

All member countries were required to All member countries were required to subscribe to the IMF's capital. subscribe to the IMF's capital.

Using the US dollar as a global gold Using the US dollar as a global gold standard.standard.

Main FailuresMain Failures

International Trade OrganizationInternational Trade Organization• The Conference also proposed the The Conference also proposed the

creation of an International Trade creation of an International Trade Organization (ITO) to establish rules and Organization (ITO) to establish rules and regulations for international trade. regulations for international trade.

• ITO charter was agreed on at the U.N. ITO charter was agreed on at the U.N. Conference on Trade and Employment Conference on Trade and Employment but was not ratified by the U.S. Senate. but was not ratified by the U.S. Senate. As a result, the ITO never came into As a result, the ITO never came into existence.existence.

Failures Cont.Failures Cont.

International Clearing UnionInternational Clearing Union• British Economist John Maynard Keynes British Economist John Maynard Keynes

argued for creating a system that would argued for creating a system that would seek global trade balance by ensuring seek global trade balance by ensuring capital flowed by nations.capital flowed by nations.

• His solution was to charge interest on His solution was to charge interest on nations with substantial trade surplus… nations with substantial trade surplus… the US fought against this provision.the US fought against this provision.

International Monetary Fund International Monetary Fund (IMF)(IMF)

A private international organization A private international organization that oversees the global financial that oversees the global financial system by following the system by following the macroeconomic policies of its macroeconomic policies of its member countries. member countries. • focuses on exchange rates and the focuses on exchange rates and the

balance of payments.balance of payments.• IMF offers financial and technical IMF offers financial and technical

assistance to its members, making it an assistance to its members, making it an international lender of last resort. international lender of last resort.

Voting Power in IMFVoting Power in IMF

Critique of the IMFCritique of the IMF IMF policy makers supported military IMF policy makers supported military

dictatorships friendly to American and dictatorships friendly to American and European corporations. European corporations.

Critics also claim that the IMF is generally Critics also claim that the IMF is generally apathetic or hostile to their views of apathetic or hostile to their views of democracy, human rights, and labor democracy, human rights, and labor rights. rights.

Arguments in favor of the IMF say that Arguments in favor of the IMF say that economic stability is a precursor to economic stability is a precursor to democracy; however, critics highlight democracy; however, critics highlight various examples in which democratized various examples in which democratized countries fell after receiving IMF loans.countries fell after receiving IMF loans.

Dictators and DebtDictators and Debt

Argentina- 42% of its current debt Argentina- 42% of its current debt was accumulated from 1976-1983 by was accumulated from 1976-1983 by a military junta.a military junta.

98% of Indonesia’s debt is from 98% of Indonesia’s debt is from Suharto dictatorship.Suharto dictatorship.

79% of South Africa’s debt was from 79% of South Africa’s debt was from Apartheid. Apartheid.

98% of Zaire/ Congo’s debt came 98% of Zaire/ Congo’s debt came from Mobutu.from Mobutu.

CriticismsCriticisms

Many nations owe the IMF money Many nations owe the IMF money from dictatorships who wasted that from dictatorships who wasted that money. money.

Financial aid is always bound to Financial aid is always bound to "Conditionalities" "Conditionalities" • including Structural Adjustment including Structural Adjustment

Programs. Programs.

"The interests of the IMF represent the big international interests that seem to be established and concentrated in Wall Street."— Che Guevara, Marxist revolutionary, 1959

World BankWorld Bank

a family of five international a family of five international organizations organizations • responsible for providing finance and responsible for providing finance and

advice to countries for the purposes of advice to countries for the purposes of economic development and eliminating economic development and eliminating poverty. poverty.

Usually offers loans for large scale Usually offers loans for large scale products. products.

AgenciesAgencies International Bank for Reconstruction and Development International Bank for Reconstruction and Development

(IBRD),(IBRD),• provides debt financing on the basis of sovereign guarantees; provides debt financing on the basis of sovereign guarantees;

International Finance Corporation (IFC), International Finance Corporation (IFC), • provides various forms of financing without sovereign provides various forms of financing without sovereign

guarantees, primarily to the private sector; guarantees, primarily to the private sector; International Development Association (IDA)International Development Association (IDA)

• which provides concessional financing (interest-free loans or which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees; grants), usually with sovereign guarantees;

Multilateral Investment Guarantee Agency (MIGA) Multilateral Investment Guarantee Agency (MIGA) • which provides insurance against certain types of risk, including which provides insurance against certain types of risk, including

political riskpolitical risk International Centre for Settlement of Investment International Centre for Settlement of Investment

Disputes (ICSID), Disputes (ICSID), • which works with governments to reduce investment risk. which works with governments to reduce investment risk.

CriticismCriticism

former WB Chief Economist Joseph former WB Chief Economist Joseph Stiglitz, argue that the so-called free Stiglitz, argue that the so-called free market reform policies in practice are market reform policies in practice are often harmful to economic often harmful to economic development.development.

Others criticize the one size fits all Others criticize the one size fits all approach. approach.

World Trade OrganizationWorld Trade Organization ( (WTOWTO) )

international organization designed by its international organization designed by its founders to supervise and liberalize founders to supervise and liberalize international trade. international trade. • Grew out of existing trade alliances and Grew out of existing trade alliances and

agreements.agreements. Deals with regulation of trade between Deals with regulation of trade between

participating countries; it provides a participating countries; it provides a framework for negotiating and formalizing framework for negotiating and formalizing trade agreements, and a dispute trade agreements, and a dispute resolution process.resolution process.

Major Trade AgreementsMajor Trade Agreements

Trade Related Investment Measures: Trade Related Investment Measures: Domestic rules on foreign investments Domestic rules on foreign investments

General Agreement on Trade in Services General Agreement on Trade in Services Intellectual property — the Agreement on Intellectual property — the Agreement on

Trade-Related Aspects of Intellectual Trade-Related Aspects of Intellectual Property Rights (TRIPS) Property Rights (TRIPS)

Dispute settlement (DSU) Dispute settlement (DSU) Reviews of governments' trade policies Reviews of governments' trade policies

(TPRM) (TPRM)

CriticismsCriticisms

The WTO has not had any great The WTO has not had any great impact in promoting growth in the impact in promoting growth in the “3“3rdrd World.” World.”

Other critics claim that the issues of Other critics claim that the issues of labor relations and environment are labor relations and environment are steadfastly ignored. steadfastly ignored.

TRIPs agreement has been used to TRIPs agreement has been used to prevent spread of generic medicine. prevent spread of generic medicine.