What are the Bretton Woods Institutions?

The World Bank and its sister organization, the International Monetary Fund, were created at Bretton Woods New Hampshire in 1944. Together they are referred to as the Bretton Woods Institutions or BWIs.

The World Bank

Originally created primarily to finance the reconstruction of war-torn Europe, the World Bank has become the primary financier of development projects in the Third World. It has also become the Third World's largest creditor. Together the countries of the Third World owe the World Bank more than US$160 billion.

The World Bank is currently the largest multi-national lending and technical agency dealing with Third World development. As the world~s leading development agency, the World Bank has a wide-ranging mandate, from consolidating loans for large-scale development projects to providing structural adjustment loans and sectoral adjustment loans to developing countries experiencing balance of payments problems.

In the 1970s, under the presidency of Robert McNamara, the World Bank grew dramatically in size and scope. In the 1980s, in large part owing to the debt crisis, the Bank increasingly served as a debt-management institution, lending in some cases as much as 50% of a developing country's portfolio toward structural and/or sectoral adjustment lending. The primary feature of this kind of lending was to restore a troubled economy's debt servicing capacity by urging indebted countries to adopt major economic reforms known as structural adjustment programmes (SAPs).

Why is the World Bank in Need of Reform?

The World Bank's failure to achieve its primary mission of poverty alleviation is now acknowledged at the most senior levels of the Bank itself, as well as by the Canadian Auditor General. Evidence of project and portfoli failures have led to increasing calls for a comprehensive review of the World Bank and the IMF, the most recent call coming from the countries of the G-7 in the communique from their 1994 Naples summit. The fundamental reform of the Bretton Woods Institutions (BWIs) is urgently needed.

Over the past decade, the World Bank has come under increasing criticism from a wide range of groups in the North and South. Environmental groups argue that many World Bank projects have had a disastrous effect on the environment. The World Bank often finances large infrastructure projects, including dams, open pit mines, and road construction. In case after case these projects have been proven economically unsound, have destroyed pristine rainforests, rivers and estuaries, and have uprooted the livelihoods of millions of Third World citizens who are affected by them. World Bank-funded development projects have forcibly resettled 2.5 million people since 1986 alone, and will likely uproot another 2.5 million by the year 2000.

Other groups have been critical of the World Bank's policies of structural adjustment designed to assist countries in correcting their balance of payments or debt problems. These programmes have exacted an unacceptable toll on the poor and the environment (see brief on "Structural Adjustment Programmes". Increasingly, these groups have joined together in the 50 Years is Enough Campaign to call for the fundamental reform of the World Bank.

The record of the World Bank in financing environmentally and socially destructive projects, as well as failed adjustment programs insensitive to local realities, is also a serious problem. These failures were brought to the fore in a recent World Bank review of its projects. The Wapenhans Report cited a significant deterioration in the overall quality of project lending. Another internal independent report on the IDA-funded India's Sardar Sarovar dam project noted that the Bank systematically failed to live up to its own environmental guidelines in evaluating and implementing the project.

What is the International Monetary Fund?

The IMF's original mandate sets forth three main objectives:

  1. To promote international monetary cooperation;
  2. To facilitate the expansion of international trade;
  3. To promote exchange rate stability.
The IMF achieves these objectives by advising member countries on their economic policies and by providing conditional assistance to member countries experiencing balance of payments problems.

The IMF often escapes close scrutiny by groups who tend to focus their advocacy efforts on the World Bank. Yet, the IMF has played a very significant, if not more important, role in exacerbating the impoverishment of developing countries. Critics argue that the IMF has strayed far from its original mandate of providing member countries with funds to alleviate short-term balance of payments crises and stabilizing exchange-rates. The IMF is increasingly under attack for its inappropriate role in exacerbating the economic crisis in Africa during the 1980s and for the fiasco surrounding Mexico's recent collapse.

The IMF played a significant role during the 1980s in "bailing out the commercial banks." By providing IMF credits to developing countries, essentially to service commercial debt, the IMF took upon itself the role of "gatekeeper" for creditors, forcing highly indebted countries to adopt SAPs as a condition not only for receiving IMF credits, but as the "stamp of approval" debtor countries needed as a condition for receiving further grants and aid from all donor sources.

By disbursing funds to developing countries in the 1980s to service commercial debt, an most recently to Mexico, the IMF essentially postponed the debt crisis by providing short term funds on very hard terms for what was essentially a structural problem of insolvency which required long-term solutions. It is widely believed that the IMF financed the "recovery" with the wrong resources and the wrong approach. Consequently, the IMF is now in the position of extracting large net transfers of resources, especially from those countries which can least afford it.

What Changes are Needed to the Bretton Woods Institutions?

It is now more important than ever to undertake a fundamental review of the policies and practices of the Bretton Woods Institutions, including projects and programmes, and include a full financial, social and ecological risk assessment. This review should be broadly based, including other industrialized countries, the nations of the developing world, and non-governmental organizations (NGOs).

Restructuring the Bretton Woods Institutions:

A 10 Point Platform

  1. End structural adjustment agreements as presently constituted and participate in transparent policy dialogues resulting in reciprocal sustainable development commitments for countries in the north and the south;
  2. Halt all funding for environmentally and socially destructive mega-projects and in future ensure that loans and credits emphasize soft-path lending for people-oriented sustainable development, focusing on poverty reduction;
  3. Use the reserves and profits of the World Bank and IMF (including its gold reserves) to cancel or substantially reduce debts owed to them by the severely indebted low and middle income countries;
  4. Set in place independent tribunals to arbitrate between creditors and debtors on appropriate conditionalities for financing debt relief;
  5. Democratize and decentralize decision-making rather than weighted voting based solely on the size of donations;
  6. Increase transparency and access to information and carry out participatory evaluation;
  7. Increase accountability and liability including taking responsibility for past miscalculations and imprudent policies and projects;
  8. Address the growing magnitude and volatility of world currency markets, with the IMF playing a role in achieving monetary stability at the international level;
  9. Assure regular and full reporting by the Canadian Executive Directors of the World Bank and IMF to the Canadian Parliament and full disclosure of Canada's voting record;
  10. Set in place a truly independent Appeals Commission to oversee the operations of the World Bank and IMF with binding recommendations.

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