Britain's Prime Minister-in-waiting, Chancellor Gordon Brown articulated what most in the developing world have been saying for almost two decades: in a keynote speech in India last month, he agreed that the UN and in particular the Bretton Woods institutions, the World Bank and the IMF are old fashioned and in urgent need of reform.
"The post 1945 system of international institutions, built for a world of sheltered economies and just 50 states, is not yet broken but--for a world of 200 states and open globalisation--urgently in need of modernisation and reform," he stated.
This comes in the wake of a damning report on the Bretton Woods institutions by the World Development Movement. The report, quoting numerous examples, argues that the World Bank's and particularly the IMF's policies have actively contributed to deepening poverty in the developing world rather than alleviating it. "Those countries that have developed most successfully have often been those that have ignored the Bank and the Fund and pursued their own path to development," the report asserts.
The Bank's mandate is to promote development, but the effect of its policies has been to increase debt.
The negative outcome of the Bretton Woods institutions in its interface with the developing world, according to the report, is a direct result of the structure of its shareholding and thus voting power and its long-term strategic aims.
The institutions came into being at the end of the Second World War, when 44 countries met in the resort town of Bretton Woods, US, in 1944. The aims of the conference were firstly to create global economic rules that would prevent another great depression and secondly, to devise a plan for rebuilding war-shattered Europe.
The real negotiations involved only a handful of countries with the UK and US dominating proceedings. It was agreed to set up an international monetary fund that would provide short-term loans to countries with balance of payments deficits. Earlier, the economist John Maynard Keynes had proposed a mechanism called the International Clearing Union through which deficits experienced by one country would be automatically balanced by surpluses in another country. This was rejected by the US which asked for and obtained a system of fixed but adjustable exchange rates tied to the US dollar (at that time, also backed by gold).
Stuck in the past
The World Bank started life as the International Bank of Reconstruction and Development (IBRD)...