Introduction
Bretton Wood Institutions refer to the World Bank (WB), the International Monetary Fund (IMF) and the World Trade Organisation (WTO). The World Bank is an intergovernmental banking institution whose main role is to provide loans and financial assistance to developing countries. The International Monetary Fund refers to an intergovernmental organisation that is mandated with fostering global monetary cooperation, promoting international trade, promoting high levels of employment, and reducing poverty in the world. On the other hand, the World Trade Organisation (WTO) refers to the international organisation whose mandate is to enact and ensure adherence to rules of trade between nations.
There have been various criticisms levelled against the three Bretton Wood Institutions since their formations. To address the criticisms, this paper will discuss each of the three organisations’ criticisms. Further, the paper will discuss the extent to which WTO, WB, and IMF are still relevant and/or are needed in the modern world. Lastly, the paper will make important recommendations of the various areas that need reforms in the three organisations. The sources for the information presented in the paper will come from peer-reviewed journals, books, and authoritative web sources such as organisations’ websites, and libraries such as the EBSCOhost.
Bretton Wood Institutions
The International Monetary Fund
The International Monetary Fund was formed in 1944 following the Bretton Woods Conference, which was convened to discuss and map the way forward towards rebuilding the international economic system, which had been devastated by the World War I and World War II (Dreher 2009). Unlike development banks, the International Monetary Fund (IMF) provides loans in diverse areas on economic needs but not specifically for development purposes (Gupta 2010). Over the years, the IMF has been criticised by its member nations and experts on various issues that relate to the level at which the organisation has managed to deliver its core functions.
Disparagement of the International Monetary Fund
The first disapproval is that neo-liberal financial programmes characterise the IMF, including being controlled by major developed capitalist countries and international private financial institutions. According Stone (2008), the various decisions that are made at the IMF on serious issues concerning the funding of member countries rely on the voting of members. However, the selection authority is guided by an allocation structure of appointment civil liberties, which are a function of the number of Single Drawing Rights (SDR) that each nation holds. The SDR relies on the degree of monetary input that a nation provides to the kitty of the body. In this case, using the criteria of the amount of financial contribution made by individual country implies that countries and bodies that have the financial muscle have a higher say in the financial institutions’ decisions as compared to those that make less contribution (Nooruddin & Simmons 2006; Peet 2008).
For instance, using this criterion, the United States has a veto over all decisions made by the IMF since it has 16.73% of the voting shares. According to Gupta (2010), private organisations also have a significant power since they provide supplemental financing, which consequently allows them to negotiate favourable terms to their advantage in terms of the returns they have. As Legrain (2004) confirms, the IMF has been criticised by other member states who feel that through the voting shares approach that is used, developing countries have been left at the mercy of the big developed capitalist economies, which indirectly impose their policies and will through the IMF.
The second significant criticism that has been levelled against the International Monetary Fund is the conditionality of the loans that are advanced to its member states. In this case, conditionality denotes the procedure where the IMF provides credit to its member states where the recipients of such advances are required to uphold stringent guiding principles as the IMF stipulates. Through the measures by the IMF, the financial institutions aim at correcting the balance of payment problems that the loan recipient countries are facing. If a country does not follow all the requirements and conditions set by the IMF, it risks losing the financial support of the financial institution (Vreeland 2007). The conditions set by the IMF for its loans to developing countries have been criticised as hitting hard the lowest members of the society while benefitting the capitalist class in the pretext of stimulating economic growth in loan recipient countries.
The above criticisms are justified drawing from many examples that are available from the countries that have benefitted from the organisation’s loans. Firstly, the care of Ireland presents a good reference point to justify that IMF is indeed driven by neo-liberal ideology in its approach to lending and conditionality (Klein 2007). In the case of Ireland, the country had to reduce public sector numbers, programmes, and social benefits spending among other neo-liberal concepts in its economy, which for a very long time had been viewed as one of the most open in the present world. Other measures such as raising the minimum wage, and the introduction of property tax and water charges among other charges in the country’s public sector were some of the changes that the country had to make to qualify for IMF loan facility (Breen 2010). These policies have been replicated in many nations where the IMF has provided financial assistance, and hence a clear indication of the neoliberal ideology that guides the functionality of the financial institution.
How the IMF has Countered the Criticisms
However, the IMF has countered the above concerns. Its supporters claim that in terms of the conditions applied by the financial institution to its members, it follows the existing and prevailing economic policies in the world. Further, in terms of the control over the organisation, the IMF has increased the participation of its member states. Thus, they have a voice in the decisions that the body makes. Through the G24, which is the main decision-making organ of the body, the IMF asserts that members have more say on the decisions that the organisation undertakes (Dreher 2009). However, this argument is countered by the view that the five countries that have the largest voting shares have higher influence on decisions and directions of the body through their diplomatic ties, which ensure that they have adequate support from G24 members.
The World Bank
Just like the IMF, the World Bank was formed in 1944 following the Bretton Woods Conference. The institution, which draws membership from more than 188 countries, was initially mandated with providing financial support for development in Europe, which had been devastated by the World War II (Marshall 2008). However, the World Bank has received criticism for its work and the way it is run and controlled.
Criticisms of the World Bank
Firstly, the organisation has been accused because of the conditionality of its loans. In this case, the institution puts in place conditions and measures that member countries and recipients have to follow to continue their cooperation with the institution. Such conditions have been criticised for ignoring country-specific economic conditions and situations of the local communities and instead following a “one fits all’ approach. This self-defeating approach often leads to the worsening of conditions in the areas that the organisation funds development projects (Abouharb & Cingranelli 2006). For instance, according to critics such as Marshall (2008), in the last 50 years, the organisation has provided close to $400 billion to developing nations, although no significant advancements can be witnessed after the donation.
Indeed, a report by Marshall (2008) points out that out of the sixty-six countries that received development financing from the bank between 1975 and 2000, more than half of them are not better off than they were before receiving the loans while 20 of those countries are worse off than before. Other critics point out that the bank’s financing is directed to high-profile projects such as hydroelectric dams that have little benefit to the poor (Legrain 2004; Weaver 2008). Instead, they have a significant environmental and social impact on the societies. For example, as Kaufmann and Kraay (2008) assert, dams cause displacement of people and loss of indigenous communities, cultures, animals, and plants, yet many people in the countries where such projects are undertaken do not have access to electricity. Critics argue that the World Bank would have done better by focusing on issues such as education and healthcare among other projects that have a positive impact on the poor people in areas that it has operations.
According to Jones (2007), over the years, the institution has been criticised for deviating from its core mission of providing loans to developed countries to just providing loans for financial gains through interest-focused lending, with a little focus and accountability of the type of projects that such finances are directed towards. In this case, instead of the bank having a specific interest in various projects that the organisation’s finances go to, it has withdrawn oversight roles and hence led to reduced accountability of how its money is spent. It is for this reason that many of its financed projects are not successful or are directed towards activities that have little benefit to the welfare of the poor people who should be the beneficiaries of development financing (Woods 2006). Lastly, the World Bank has been criticised in terms of the fairness of its conditions that it sets for the members who receive its loans. Indeed, the institution has been favouring its more development member nations while imposing strict rules on underdeveloped nations.
How the World Bank Addresses the Criticisms
To address these criticisms, the World Bank has sought to increase and demand accountability on the spending of its finances through oversight committees in its member countries across the world (Jones 2007). Further, the organisation has argued that many of the measures that it applies involve the prevailing rules that are in place in the current financial environment and that its rules are more lenient in terms of control and interest rates that it demands from its beneficiaries (Abouharb & Cingranelli 2006). In terms of the control of the decision-making process, the proponents of the World Bank assert that the institution allows the participation of all its members through its main top 20 voting countries to ensure that all interests are considered.
The World Trade Organisation (WTO)
The World Trade Organisation was formed later on as an addition to the initial two Bretton Wood Institutions. The organisation was formed in 1995 with the aim of providing policy guidelines and control over the international trade (Aggarwal & Evenett 2014). The organisation replaced the previous General Agreements on Tariffs and Trade (GATT), which had been in place since 1948 (Goldstein & Steinberg 2008). The main aim of the organisation was to provide important guidelines and/or oversee bilateral and multilateral trade agreement to guarantee little exploitation through loopholes in the administration and operation of such agreements. Further, the body was mandated with providing a forum for negations between members on issues that related to their multilateral and bilateral trade agreements and relations (Wallach & Sforza 2011). In addition, the body was mandated with ensuring close collaboration with other global financial institutions such as the IMF and the WB whose activities influence trade in member countries (Lawrence 2007). Like the other Bretton Wood Institutions, the WTO has received criticism from member countries, as well as from other experts, who feel that the body has far-reaching partiality weaknesses that must be addressed to ensure that it achieves its mandate (Stiglitz 2002; Peet 2003).
Criticisms of the World Trade Organisation
Firstly, the WTO is criticised for its push for free trade and non-tariff barriers among its nations. Supporters of this criticism point out that free trade only benefits the developed countries since they are in a better position to produce and sell their products across the world (Ismail & Vickers 2011). Such an approach ensures that infant industries in developing countries stand no chance in their local, as well as international markets since they lack the capacity to compete with developed countries’ multinational companies, which are more financed or have better technologies that boost their competitiveness (Chorev & Babb 2009).
Secondly, the organisation has been criticised for ignoring the country-specific conditions, especially in developing countries, which are still advancing on the industrialisation path. In the developing countries, industries such as agriculture and mining are the main economic activities. However, in the long-term, they need to diversify to become industrialised (Wolfe 2009). In this case, by applying the same rules as developed countries, young industries in developing countries are not protected. According to Stiglitz (2002), this gap effectively ensures that such countries continue to depend on primary industries for their untenable economy.
Thirdly, the WTO has been criticised for being undemocratic since it does not consider many of the country-specific trade situations, especially in the developing world (Chorev & Babb 2009). In this case, the organisation applies blanket rules, which wrongly assume all countries that fall under the free trade have an equal opportunity in the global trade (Wolfe 2009). Further, since the WTO is controlled majorly by the developed world countries, which finance its activities, developing countries, have no voice in the decisions that are made by the institution.
How the WTO has addressed the Criticisms
In response to these issues, WTO has embarked on the process of increasing participation of its member states in decision-making on the various rules that govern trade among member countries (Aggarwal & Evenett, 2014). However, other issues concerning the application of country-specific rules and agreements as opposed to ‘one fits all’ policies have not been well handled. Hence, many developing countries continue to be disadvantaged in a system that favours the developed countries.
Besides, the WTO has embarked on promoting environmental protection since its requirement for reciprocity bars the importation of products from countries that have questionable environmental protection records (Lawrence 2007). In this case, countries are required to treat each other fairly. This strategy closes doors for the exploitation of environment because of the open market for such products (Wolfe 2009).
Concerns that have not been addressed by Bretton Wood Institutions
Although the Bretton Woods Institutions have defended themselves from critics by advancing various arguments, several areas of concern have not been addressed. Firstly, the International Monetary Fund (IMF) was mandated with ensuring favourable balance of payments in its members. However, more than 50 years since the institution was formed, many developing countries have untenable balances of payments. The IMF has not managed to change the trend (Aggarwal & Evenett 2014). Instead, the Structural Adjustment Programmes (SAPs) that the institution rolled in the 1980s and early 1990s for developing countries left such countries with higher debt burden, which went against what such programmes were intended to achieve (Stiglitz 2007).
Secondly, despite the fact that the Bretton Wood Institutions have defended themselves from the accusation of political influences by the biggest economies in the world, it is evident that such influence still prevails. For instance, the leadership of the World Bank and the International Monetary Fund has rotated between Europe and the United States (Chorev & Babb 2009). Indeed, it is almost impossible to imagine the two organisations being led by an individual from the developing world. In this case, it is evident that the top financiers still politically control the organisations as a way of ensuring that such countries have more control of the activities of the institutions as compared to the developing countries (Stiglitz 2007).
Thirdly, Bretton Wood Institutions have been accused of focusing on programmes that do not necessarily benefit the least privileged in the society. For instance, the World Bank focuses on the development of large-scale programmes such as hydroelectric dams and roads among other projects that do not help the poor. It has failed to address other immediate needs among the poor such as healthcare, education, and poverty (Aggarwal & Evenett, 2014). In this case, the institutions act as tools for benefiting the elite and not the poor.
The World Trade Organisation plays an essential role in promoting free trade in the world. However, the institution has not addressed the issue of inequality in terms of the competitive advantage among members. This area of concern gives the developed world a better opportunity in free trade economy (Stiglitz 2007). In this case, the developing nations lack the necessary technologies and financial ability to compete with the advanced nations’ economies in a free trade global economy. Hence, despite the concerns raised by developing countries, the WTO has been reluctant to act on them, thus leaving out the disadvantaged nations at a loss (Chorev & Babb 2009). Infant industries in the developing nations have a little opportunity to succeed in the global economy. Without addressing the above concerns, the Bretton Wood Institutions will continue to be viewed as advancing partisan agendas for the developed nations.
Relevance of the Bretton Wood Institutions and the Possible Reform Areas
Regardless of the criticisms that have been advanced against the Bretton Wood Institutions, many success stories have been achieved during their activities. For instance, the World Bank and the IMF have managed to finance major infrastructural and economic projects that would otherwise be impossible without such financial support (Wolfe 2009). On the other hand, the World Trade Organisation has reduced trade barriers across member countries (Stiglitz 2007). Initially, such barriers made the trade difficult. In this case, many developing countries would previously have found it difficult to sell their products in developed countries that were imposing high tariff barriers (Chorev & Babb 2009). However, with new rules and the promotion of free trade, countries can trade wherever and whenever they need across the world (Stiglitz 2007). Hence, Bretton Wood Institutions are still relevant in the modern world.
However, various areas need reforms to ensure that the institutions continue to remain relevant in the present world. Firstly, there is a need to have more oversight and control over the projects that the financial institutions support to guarantee accountability and the achievement of the main goals of such programmes. Secondly, there is a need to ensure that all member states have a fair share of the decisions that are made by the financial institutions since such decisions have far-reaching consequences on all people in the individual countries. The World Trade Organisation should establish policies and rules that protect infant industries in developing countries to ensure that they can compete internationally.
Conclusion
It is evident that the three Bretton Wood Institutions have played an important role in the global financial sector, development, and trade. However, the criticisms levelled against such institutions are an indication of the fact that there is a need for reforms to ensure that they play their initial role of advocating equality in terms of development and trade across member countries. The reforms include the need to ensure fairness in decision-making among all member countries. Further, it is important to certify that the trade policies and rules provide fair treatment of member countries with a consideration of their unique conditions. Concisely, the Bretton Wood Institutions are still relevant in the modern world.
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