Bretton Woods and the UN System

Article excerpt

The Bretton Woods institutions - the International Monetary Fund (IMF) and the World Bank - derive their name from the small village in the northeastern US state of New Hampshire, near the Canadian border, where the conference establishing them was held in 1944.

At that time the United Nations organization did not yet exist, although its foundation had already been foreshadowed well before 1944. Thus, when the IMF and World Bank were established, their relationship to the still-nonexistent UN organization was naturally left open and vague, even though the terms of reference of both the IMF and World Bank indicated that there would be some relationship. In the event, after the United Nations was established at the San Francisco conference of 1945, the World Bank and the IMF became specialized agencies of the UN, legally of the same status as such other specialized agencies as the International Labour Organization (ILO), Food and Agriculture Organization (FAO), United Nations Educational, Scientific and Cultural Organization (UNESCO) and the like. In fact, the first two of these agencies, like the IMF and World Bank, were also established before the United Nations organization.

Despite the fact that the IMF and World Bank are no different in legal status from the rest of the specialized agencies, in reality it is recognized that they enjoy a different and virtually independent status. Hence in current discussion a distinction is made between two different systems: the Bretton Woods system and the UN system. While legally incorrect - there is only one single UN system - this distinction corresponds to the facts of life. The Bretton Woods system is not only de facto independent but is actually dominant and immensely more powerful than the UN system.

The reason for this is rooted in the different voting rights of member countries. In the UN system, at least as far as economic and social matters are concerned, voting is essentially on a one-country-one-vote system. The exception is the Security Council, which deals with high political and military matters, whose five most important founder countries have not only a permanent seat but also a veto. In the early days of the UN this did not make too much difference: almost all the African countries as well as the Indian sub-continent were not yet independent states and therefore had no vote. But as more and more countries became independent, the third world, on the one-country-one-vote system, acquired a controlling majority in the General Assembly and corresponding bodies of the specialized agencies.

By contrast the IMF and World Bank from the beginning had a system of weighted voting, based on the financial strength and contributions of member countries - more or less a "one-dollar-one-vote" system. Hence the Western industrial countries are in firm control of the Bretton Woods institutions. Until very recently the US alone had a blocking vote on all World Bank and IMF loans. Understandably, the Western industrial countries came to rely more and more on the Bretton Woods institutions, and the Bretton Woods institutions increasingly followed the ideologies and policies of the Western industrial countries. By contrast, the UN has become neglected and marginalized, at least as far as influence on development policies is concerned.

Bretton Woods and development

The decisive shift came in 1959, when the plan for a multilateral soft aid programme was accepted, but was established in the World Bank, not in the UN, where all the previous discussion and preparatory work had taken place. The UN project went by the name of Special United Nations Fund for Economic Development (SUNFED). Instead of SUNFED, a special soft aid window was established in the World Bank as the International Development Administration (IDA). The World Bank itself had to lend at commercial rates of interest, since it depended on raising its resources from international capital markets; IDA could lend at highly concessional rates and conditions because it was financed through special "replenishments" in the form of contributions from the wealthier member countries, renewed every three years. …