Bretton Woods Conference


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Bretton Woods Conference

  1. 1. Bretton Woods Conference : A Vendetta between developed and developing nations? "The economic health of every country is a proper matter of concern to all its neighbors, near and far." — U.S. President Franklin D. Roosevelt at the opening of Bretton Woods
  2. 2. What Was Bretton Woods? <ul><li>In the aftermath of WWII (in Europe) The United Nations Monetary and Financial Conference commonly known as Bretton Woods conference, was a gathering of 730 delegates from all 44 Allied nations. </li></ul><ul><li>Main goal was to regulate the international monetary and financial. </li></ul>
  3. 3. Mount Washington Hotel, situated in Bretton Woods, New Hampshire
  4. 4. Rational <ul><li>In 1944 as well as today historians and economists often argue economics played a vital role in causing WWII. </li></ul><ul><li>Argument- </li></ul><ul><ul><li>WWI set the conditions to ensure a second World War. </li></ul></ul><ul><ul><li>Extreme governments circa 1932 rose to power due to Global Great Depression. </li></ul></ul>
  5. 5. Rational Continued <ul><li>Fear over Great Depression </li></ul><ul><ul><li>Many nations wanted protection from a repeat </li></ul></ul><ul><li>“Linked economies don’t go to war” </li></ul><ul><li>Support for Govt. intervention in Economic development. </li></ul><ul><li>Tools to reconstruct postwar Europe. </li></ul>
  6. 6. John Maynard Keynes <ul><li>A British economist whose ideas have had a major impact on modern economic and political theory. </li></ul><ul><li>He advocated interventionist government policy </li></ul><ul><ul><li>the use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms. </li></ul></ul><ul><li>His ideas are the basis for the school of thought known as Keynesian economics. </li></ul>
  7. 7. Keynesian economics <ul><li>Keynes's theory suggested that active government policy could be effective in managing the economy. </li></ul><ul><li>Keynes advocated policies which acted against the tide of the business cycle: </li></ul><ul><ul><li>deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high </li></ul></ul><ul><ul><li>and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. </li></ul></ul><ul><li>Governments should solve problems in the short run rather than waiting for market forces, </li></ul><ul><ul><li>&quot;in the long run, we are all dead.&quot; </li></ul></ul>
  8. 8. Milton Friedman <ul><li>An American economist, statistician and public intellectual, and a recipient of the Nobel Memorial Prize in Economic Sciences. </li></ul><ul><li>A global public followed his restatement of a political philosophy that insisted on minimizing the role of government in favor of the private sector. </li></ul><ul><li>As a leader of the Chicago School of economics, he had a widespread influence in shaping the research agenda of the entire profession. </li></ul><ul><li>The Economist hailed him as &quot;the most influential economist of the second half of the 20th century…possibly of all of it&quot;. </li></ul>
  9. 9. Monetarism <ul><li>Favors Lassez-Faire attitude between Government and the private sector. </li></ul><ul><li>Generally supports low taxation, privatization of public holdings and deregulation. </li></ul><ul><li>Freidman’s logic was the freer the market the freer the people. </li></ul>
  10. 10. Main Conference Agreements <ul><li>Formation of the IMF and the IBRD (World Bank). </li></ul><ul><li>Adjustably pegged foreign exchange market rate system: </li></ul><ul><ul><li>The exchange rates were fixed, with the provision of changing them if necessary. </li></ul></ul><ul><li>Currencies were required to be convertible for trade related and other current account transactions. </li></ul><ul><li>All member countries were required to subscribe to the IMF's capital. </li></ul><ul><li>Using the US dollar as a global gold standard. </li></ul>
  11. 11. Main Failures <ul><li>International Trade Organization </li></ul><ul><ul><li>The Conference also proposed the creation of an International Trade Organization (ITO) to establish rules and regulations for international trade. </li></ul></ul><ul><ul><li>ITO charter was agreed on at the U.N. Conference on Trade and Employment but was not ratified by the U.S. Senate. As a result, the ITO never came into existence. </li></ul></ul>
  12. 12. Failures Cont. <ul><li>International Clearing Union </li></ul><ul><ul><li>British Economist John Maynard Keynes argued for creating a system that would seek global trade balance by ensuring capital flowed by nations. </li></ul></ul><ul><ul><li>His solution was to charge interest on nations with substantial trade surplus… the US fought against this provision. </li></ul></ul>
  13. 13. International Monetary Fund (IMF) <ul><li>A private international organization that oversees the global financial system by following the macroeconomic policies of its member countries. </li></ul><ul><ul><li>focuses on exchange rates and the balance of payments. </li></ul></ul><ul><ul><li>IMF offers financial and technical assistance to its members, making it an international lender of last resort. </li></ul></ul>
  14. 15. Voting Power in IMF
  15. 16. Critique of the IMF <ul><li>IMF policy makers supported military dictatorships friendly to American and European corporations. </li></ul><ul><li>Critics also claim that the IMF is generally apathetic or hostile to their views of democracy, human rights, and labor rights. </li></ul><ul><li>Arguments in favor of the IMF say that economic stability is a precursor to democracy; however, critics highlight various examples in which democratized countries fell after receiving IMF loans. </li></ul>
  16. 17. Dictators and Debt <ul><li>Argentina- 42% of its current debt was accumulated from 1976-1983 by a military junta. </li></ul><ul><li>98% of Indonesia’s debt is from Suharto dictatorship. </li></ul><ul><li>79% of South Africa’s debt was from Apartheid. </li></ul><ul><li>98% of Zaire/ Congo’s debt came from Mobutu. </li></ul>
  17. 18. Criticisms <ul><li>Many nations owe the IMF money from dictatorships who wasted that money. </li></ul><ul><li>Financial aid is always bound to &quot;Conditionalities&quot; </li></ul><ul><ul><li>including Structural Adjustment Programs. </li></ul></ul>&quot;The interests of the IMF represent the big international interests that seem to be established and concentrated in Wall Street.&quot; — Che Guevara , Marxist revolutionary, 1959
  18. 19. World Bank <ul><li>a family of five international organizations </li></ul><ul><ul><li>responsible for providing finance and advice to countries for the purposes of economic development and eliminating poverty. </li></ul></ul><ul><li>Usually offers loans for large scale products. </li></ul>
  19. 20. Agencies <ul><li>International Bank for Reconstruction and Development (IBRD), </li></ul><ul><ul><li>provides debt financing on the basis of sovereign guarantees; </li></ul></ul><ul><li>International Finance Corporation (IFC), </li></ul><ul><ul><li>provides various forms of financing without sovereign guarantees, primarily to the private sector; </li></ul></ul><ul><li>International Development Association (IDA) </li></ul><ul><ul><li>which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees; </li></ul></ul><ul><li>Multilateral Investment Guarantee Agency (MIGA) </li></ul><ul><ul><li>which provides insurance against certain types of risk, including political risk </li></ul></ul><ul><li>International Centre for Settlement of Investment Disputes (ICSID), </li></ul><ul><ul><li>which works with governments to reduce investment risk. </li></ul></ul>
  20. 22. Criticism <ul><li>former WB Chief Economist Joseph Stiglitz, argue that the so-called free market reform policies in practice are often harmful to economic development. </li></ul><ul><li>Others criticize the one size fits all approach. </li></ul>
  21. 23. World Trade Organization ( WTO ) <ul><li>international organization designed by its founders to supervise and liberalize international trade. </li></ul><ul><ul><li>Grew out of existing trade alliances and agreements. </li></ul></ul><ul><li>Deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process. </li></ul>
  22. 24. Major Trade Agreements <ul><li>Trade Related Investment Measures: Domestic rules on foreign investments </li></ul><ul><li>General Agreement on Trade in Services </li></ul><ul><li>Intellectual property — the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) </li></ul><ul><li>Dispute settlement (DSU) </li></ul><ul><li>Reviews of governments' trade policies (TPRM) </li></ul>
  23. 25. Criticisms <ul><li>The WTO has not had any great impact in promoting growth in the “3 rd World.” </li></ul><ul><li>Other critics claim that the issues of labor relations and environment are steadfastly ignored. </li></ul><ul><li>TRIPs agreement has been used to prevent spread of generic medicine. </li></ul>