A Bumpy Road from Bretton Woods

Article excerpt

FIFTY years ago tomorrow the Bretton Woods monetary conference ended. More, perhaps, than any other single gathering, it helped to shape the post-war world. For it set the framework for monetary order, based on freedom of trade and currency movements, and so underwrote the greatest half-century of economic expansion that the world has ever known.

Even Russia and China, as well as most of the developing world, are belatedly adopting the open trade and financial markets that Bretton Woods sought to establish. The intellectual victory, measured by the extent to which governments around the world frame their policies in line with the system, is complete.

Yet the anniversary is not being greeted with universal acclaim. Rather the reverse. In particular, the twin financial organisations spawned by Bretton Woods, the International Monetary Fund and the World Bank, have found themselves under sustained attack. Part of the hostility comes from what might loosely be called the left. There is a campaign in the US which goes under the banner "Fifty years is long enough". In Britain, Christian Aid has this week published a booklet, Who Runs the World?, the start of a two-year campaign calling for far-reaching changes to the bank and the fund.

But the two institutions are also attacked from the right. US congressmen castigate the staff for their lavish lifestyles, and the US administration has been delayed time and again by Congress in its efforts to provide additional funding for the bank.

The Christian Aid booklet well expresses the unease many people feel about the uneven distribution of benefits of world economic growth. And while the world has become richer, there have been costs to individuals and damage to the environment which, rightly or wrongly, can be attributed to the work of the twin Bretton Woods institutions.

This work has changed over the years. In the immediate post-war era there was a clear distinction between the two. The IMF policed the fixed-exchange-rate system, giving short-term loans to countries which found themselves in balance of payments difficulties so that they would not have to impose damaging trade restrictions. The World Bank, meanwhile, lent money to finance investment projects, typically large public-sector ones, such as dams. But over time these roles merged.

In the Seventies the fixed-exchange-rate system broke up, and the IMF's seal of approval for a government's financial policies became more important than its loans. Its clients also changed from being industrial to developing nations, particularly during the Eighties when the fund helped Latin America to resolve the debts it had accumulated with the commercial banks.

The World Bank's role also shifted in the Eighties, becoming an adviser to developing countries on how to change their economies to a more market-orientated system: changes that go by the ugly name of structural adjustment programmes. It would give loans to help finance the changeover.

So today both organisations are in the business of telling countries how to run their economies, and giving some loan money to sweeten the pill.

The fact that two of the main policies advocated by the IMF (and indeed the World Bank) are control of the money supply and privatisation makes many people see these as externally imposed Thatcherism: right-wing policies with no democratic mandate. …