Bretton Woods-Original Intentions and Current Problems
Mikesell, Raymond F., Contemporary Economic Policy
RAYMOND F. MIKESELL [*]
The Bretton Woods institutions have been subjected to a variety of criticisms in recent years and have been faced with severe problems in carrying out their objectives. The International Monetary Fund (IME) and the World Bank have not performed in accordance with the original intentions of their founders. As shown in this article, this is in large measure because the world economic environment has been quite different from that envisaged by the participants in the Bretton Woods conference. Many of the original intended functions for these institutions are no longer relevant. This article examines the current problems facing the IME and World Bank, with special attention to how they are related to the original intentions. For example, in recent years, a major problem has been the financial crises of member countries that have liberalized their economies in line with trends toward globalization. These crises have resulted in demands on the IMF and World Bank for financial assistance for purposes other than those for which their assistance was originally designed. Other problems of the two institutions include providing assistance to the world's poorest countries that have made virtually no development progress in recent years, and assisting the former communist countries in transition to market economies. The author gives his personal views on how these and other problems of the IMF and World Bank should be dealt with. (JEL F31, F33)
The policies and functions of the Bretton Woods institutions--the International Monetary Fund (IME) and the World Bank--have in recent decades differed substantially from the intentions of the participants in the Bretton Woods conference of July 1944. The IMF was an agreement to stabilize currencies and avoid restrictive exchange practices. It provided short-term liquidity to members with current account deficits, conditioned on their taking measures to restore balance of payments equilibrium. The World Bank was intended to make loans and guarantees for post--World War II reconstruction and for economic development. Although there was agreement at Bretton Woods on these general functions, there was disagreement on a number of issues, particularly those relating to policies and activities of the IMF. The intentions of the conference participants were not fully or clearly reflected in the Articles of Agreements or charters of the two institutions drafted at the 1944 conference. The provisions of the IMF charte r were a compromise between U.S. and British positions set forth in an agreement negotiated prior to Bretton Woods. Some of the provisions of the IMF charter were interpreted differently by the representatives of the two countries, and there was far from full agreement among the delegates of the forty-four countries participating in the conference on the text of the IMF charter (Mikesell, 1994).
The conference was dominated by the Americans and British, and although many alternative provisions of the charters were debated, the basic provisions that had been agreed to by the Americans and British prior to the conference were adopted by unanimous vote. For these reasons, the intentions of the participants regarding some of the important policies of the two institutions were far from uniform. However, changes in the world economy over the past half century have made many of the differences in intentions irrelevant. For example, the World Bank was intended to play a major role in postwar reconstruction, but this function was taken over by the Marshall Plan. Likewise, the role of the IMF for promoting convertibility of the currencies of the major countries was supplanted by the European Payments Union under the management of the Bank for International Settlements, which resulted in the interconvertibility of European currencies but not their convertibility into dollars. As a consequence, the IMF and Worl d Bank made few loans to developed countries, and both institutions mainly provide financial assistance and advice to developing countries. …