3 1. Bretton Woods: origins, re-cap week 8 Simple stories; success, growth of trade; “30 golden years”, established mass-consumer economies of OECD.Role of US hegemony? Dollar standard, unsustainable?US deficits; Vietnam and fixed-rate collapse;
4 The Bretton Woods system is commonly understood to refer to the international monetary regime that prevailed from the end of World War II until the early 1970s.The Bretton Woods system was history's first example of a fully negotiated monetary order intended to govern currency relations among sovereign states.In principle, the regime was designed to combine binding legal obligations with multilateral decision-making conducted through an international organization, the IMF, endowed with limited supranational authority.In practice the initial scheme, as well as its subsequent development and ultimate demise, were directly dependent on the preferences and policies of its most powerful member, the United States. (Cohen on-line article, please READ; essential for both weeks 8 and 12…)
5 Bretton Woods Conference: July 1944, delegates from Allied nations meet in New Hampshire, USA, to discuss the world economy after the war. Led by USA and Britain, an agreement was reached (echoing the US position represented by Harry Dexter White, establishing the IMF and the World Bank. These two organisations (plus GATT to be established in 1948) would later become known as the Bretton Woods Institutions (BWIs).OBJECTIVES:Restoration of the multilateral system of payments that had broken down during the 1930s. This required a new mechanism of international monetary governance, to be overseen by the IMF.Reconstruction of Europe: How to kick-start war-torn European economies? Major work in rebuilding infrastructure + need for capital goods; to be overseen by World Bank/IBRD . (N.B.: Marshall Plan would emerge as a more concrete alternative)Reviving international trade: How to roll back the extreme protectionism and high tariffs of the depression & war era to take advantage of international trade? This would be overseen by GATT. (N.B. the failure to see through the establishment of the International Trade Organisation.)
10 IMF Executive Board Completes First and Second Reviews Under Extended Fund Facility Arrangement for Greece and Approves €3.24 Billion DisbursementPress Release No.13/13 January 16, 2013 The Executive Board of the International Monetary Fund (IMF) today completed the first and second reviews of Greece’s economic performance under a program supported by a four-year Extended Fund Facility (EFF) arrangement for Greece. The completion of the review enables the disbursement of an amount equivalent to SDR billion (about €3.24 billion or US$4.3 billion),
11 2. THE IMF AND INTERNATIONAL MONETARY GOVERNANCE The IMF and World Bank are quite different organisations in terms of mandate, organisation, and governance. But let us start from commonalities:IMF-WB: COMMON ELEMENTSBoth founded in 1944 at the Bretton Woods conference (United Nations Monetary and Financial Conference convened at Bretton Woods, New Hampshire).Both headquartered in Washington, DC (in buildings across from one another)Both considered to represent dominant liberal economic ideas in the North and often criticized to be biased toward Northern economic interests.Both are in the business of ‘conditional lending’: funds allocated in return for policy actions/reforms by clients (member states).Both allocate most of their lending to developing members, especially MICsBoth are deeply involved in economic/development research and advocacySince the early 1980s (debt crisis), the two organizations try to coordinate their activities. They hold IMF-World Bank Annual Meetings (usually in the fall).
12 The IMF: Mandate and Organization The IMF was originally mandated with the task of stabilizing international exchange rates, thereby helping revive international trade in the aftermath of the WWII. It was conceived to become the one institution that would hold the international monetary system together. Currently, it has two core functions:1. Bilateral and Multilateral Surveillance: The IMF monitors members’ monetary (and more broadly macroeconomic) policies and their balance of payments situation, and oversees the international monetary system. This is a continuous function of the IMF. It is mandated in the Article IV of its Article of Agreements. Each member holds annual Article IV consultations with the Fund.2. Crisis Lending: The IMF is also mandated with providing short-term funding for members that encounter balance of payments difficulties. This funding is conditional upon the member taking ‘necessary steps’ to correct its payments imbalance. This is an on-demand function of the IMF. It is mandated in Article I and Article V (section 3) of its Articles of Agreements.In addition, the IMF is also a ‘think-tank’ with a large research department and has expanding functions regarding international economic coordination in close cooperation with other platforms such as the World Bank, OECD, WTO.
13 The head of the IMF is its Managing Director --- so far always a European. Board of Governors and 24-member Executive Board.Governance and the Quota System: The IMF’s sole source of income is member contributions. This contribution is called a “quota”, assigned on the basis of the size of a member’s economy. In turn:1. Voting Share/Power: A member’s quota determines its voting power. It is a “weighted system” of voting.2. Borrowing: A member can borrow up to 200% of its quota annually, or 600% of it cumulatively (although there are frequent exceptions).The IMF (as well as the World Bank) is undergoing a “quota reform” to increase the quota shares and hereby representation of leading developing countries.In the current system, countries have the following shares of votes:US = 16.75% Japan = 6.23% Germany = 5.81% UK = 4.29%France = 4.29% Canada = 2.56 % China = 3.81% India = 2.34%Brazil = 1.72% Russia = 2.39% S. Africa = 0.77% Ghana = 0.18%US + EU members + Japan + a few others make up nearly 60% of voting shares.
14 IMF LendingIMF lending is called a “facility”. The typical lending facility has been the Stand-By Arrangement (SBA). However, in 1999, a new window of concessional lending (=very low interest rates) was introduced toward low-income members, called the Poverty Reduction and Growth Facility (PRGF). This was also discontinued recently (in 2009—more on this later). SBA is now reserved for MICs.IMF ‘unit of account’ is called Special Drawing Rights (SDRs). This is not a currency, but a reserve asset exchangeable to major currencies. (This was introduced in 1970 to offset the effect of the US’s pending abandonment of gold.)IMF lending is allocated in “tranches”. The release of tranches is conditional upon certain policy acts.Program reviews regarding conditionality emphasize two notions:(a) Quantitative Performance Criteria: For instance, reduce budget deficit by X %.(b) Structural Benchmarks: Usually qualitative; e.g. pass law on privatization.
15 3. ChronologyUntil the 1980s, the BWIs were not in the limelight. They were considered more technical, specialist organisations with rather limited mandates.In the 1950s, the World Bank (IBRD) was involved in the postwar reconstruction in Europe. It turned its attention to the developing world as decolonisation picked up steam in the 1960s.Until the late 1960s, its attention was focused almost exclusively on building physical capital (especially infrastructure). The focus on poverty and welfare, particularly in the context of agrarian development, grew slowly in the 1970s.The IMF looked far more technical. Loan to Turkey in 1958, but also SBAs to the UK in 1967 and France in 1969.IMF introduced the SDR in 1970 to prevent the collapse of the Bretton Woods fixed exchange rate system ( ); it ultimately failed, but SDRs remain.Even then, both organisations continued to grow and developed expertise.Note, neither of these institutions played a crucially important function for the world economy at the height of the Bretton Woods order, i.e. In the 1950s and 1960s. The US itself was more crucial. They became far more important after the 1980s...15
16 Chronology; shifting policy approaches 1980s: “neo-classical counter revolution”; economic growthre-assertion of markets over states?“Washington Consensus”Lessons from failures of ‘80s debt, adjustment(Structural Adjustment Policies),Economic conditionality, rise of “governance”Leading to new (“post-Washington”) consensusi.e. New Policy Agenda (B. Fine article)Millennium Development Goals (MDGs)IMF – post 2007 crisis role?
17 3. THE WORLD BANK AND INTERNATIONAL DEVELPMENT The World Bank Group is the leading international development institution with a far more diverse mandate than the IMF. It is also substantially larger (2,400 IMF staff vs. +10,000 WB staff) and has a much wider field presence.The Bank was established as International Bank for Reconstruction and Development, with the purpose of providing funds toward infrastructure reconstruction in Europe after the devastation of WWII. Today, it is comprised of five agencies with different mandates:1. International Bank for Reconstruction and Development (IBRD; est. 1945): Development lending toward governments, targeting MICs.2. International Development Association (IDA; est. 1960): Development lending toward governments via concessional loans, targeting LICs.3. International Finance Corporation (IFC; est. 1956): Government-guaranteed financing to the private sector.4. Multilateral Investment Guarantee Agency (MIGA; est. 1988): Promotes FDI via insurance schemes toward the private sector.5. International Centre for Settlement of Investment Disputes (ICSID; est1966): Settles investment disputes between governments and foreign investors.
18 Voting shares, like the IMF, is based on a “weighted system”, deriving from members’ contribution to the paid-up capital of the Bank. US has a share of 17%, and total share of developed countries is about 60 %.The World Bank is a very large bureaucratic organisation. Permanent missions in a large number of members, a huge consultants’ network, and a very large number technical staff with a wide variety of expertise.The World Bank is the largest ‘think tank’ in the world; the World Bank Institute and Development Economics Vice Presidency lead the Bank’s research activities. It publishes the influential World Development Report.Unlike the IMF, the World Bank can borrow from private markets to fund its lending operations.Both IMF and World Bank: Source of information on LDCs: transparency…
19 World Bank LendingWorld Bank lending (in particular IBRD-IDA lending toward member governments) is based on projects. Unlike the IMF, which could have only one program running in a member country at a time, the World Bank can have multiple ‘active projects’ in the same country, which is almost always the case in large MICs.IBRD-IDA has two basic types of lending:1. Investment Lending: Primarily aimed at building physical capital, especially in infrastructure, energy, transportation, and lately the environment.2. Policy Lending: Primarily aimed at improving policies and institutions in place in a member country, often including reform components. Structural Adjustment Loan (SAL) programs of the 1980s and 1990s were mostly of this type. Today, most such projects are grouped under the term Development Policy Loan (DPL).Conditionality – back to Greek example…
20 Until the 1980s, the BWIs were not in the limelight Until the 1980s, the BWIs were not in the limelight. They were considered more technical, specialist organisations with rather limited mandates.In the 1950s, the World Bank (IBRD) was involved in the postwar reconstruction in Europe. It turned its attention to the developing world as decolonisation picked up steam in the 1960s.Until the late 1960s, its attention was focused almost exclusively on building physical capital (especially infrastructure). The focus on poverty and welfare, particularly in the context of agrarian development, grew slowly in the 1970s.The IMF looked far more technical. Loan to Turkey in 1958, but also SBAs to the UK in 1967 and France in 1969.IMF introduced the SDR in 1970 to prevent the collapse of the Bretton Woods system; it ultimately failed, but the SDR lingered.Even then, both organisations continued to grow and developed expertise.Note, however, that in fact neither of these institutions played a crucially important function for the world economy at the height of the Bretton Woods order, i.e. In the 1950s and 1960s. They became far more important after the 1980s... The US itself was more crucial.
21 The IMF and the on-going debate over Global Governance The IMF and the on-going debate over Global Governance. Central role, but under funded?Controversies, linked to deeper perceptions, and realities, of neo-liberalism.Coupled with current austerity
22 20 April 2012 IMF doubles its lending firepower George Osborne: "It is in Britain's interest that we have a stable and strong world economy"The IMF says it has received firm commitments of more than $430bn.The money is to help economies in trouble and includes just under £10bn ($15bn) from the UK in loans to the International Monetary Fund (IMF).It is part of a global effort to bolster the fund's lending capacity, which IMF managing director Christine Lagarde wanted to increase by $400bn. The money doubles the fund's firepower which threatened to become overwhelmed by the eurozone crisis.Australia will contribute $7bn, Singapore $4bn and the Republic of Korea $15bn.The IMF's managing director, Christine Lagarde, said that some countries including Russia, India, China and Brazil had made private pledges but did not want to go public until they had discussed the pledges back home.In a joint statement following the meeting in Washington, the IMF's International Monetary and Financial Committee (IMFC) and the G20 finance ministers and Central Bank governors said: "There are firm commitments to increase resources made available to the IMF by over $400bn in addition to the quota increase under the 2010 reform.“