Bretton Woods Conference

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  • 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. What Was Bretton Woods?
    • 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.
    • Main goal was to regulate the international monetary and financial.
  • 3. Mount Washington Hotel, situated in Bretton Woods, New Hampshire
  • 4. Rational
    • In 1944 as well as today historians and economists often argue economics played a vital role in causing WWII.
    • Argument-
      • WWI set the conditions to ensure a second World War.
      • Extreme governments circa 1932 rose to power due to Global Great Depression.
  • 5. Rational Continued
    • Fear over Great Depression
      • Many nations wanted protection from a repeat
    • “Linked economies don’t go to war”
    • Support for Govt. intervention in Economic development.
    • Tools to reconstruct postwar Europe.
  • 6. John Maynard Keynes
    • A British economist whose ideas have had a major impact on modern economic and political theory.
    • He advocated interventionist government policy
      • the use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms.
    • His ideas are the basis for the school of thought known as Keynesian economics.
  • 7. Keynesian economics
    • Keynes's theory suggested that active government policy could be effective in managing the economy.
    • Keynes advocated policies which acted against the tide of the business cycle:
      • deficit spending when a nation's economy suffers from recession or when recovery is long-delayed and unemployment is persistently high
      • and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays.
    • Governments should solve problems in the short run rather than waiting for market forces,
      • "in the long run, we are all dead."
  • 8. Milton Friedman
    • An American economist, statistician and public intellectual, and a recipient of the Nobel Memorial Prize in Economic Sciences.
    • A global public followed his restatement of a political philosophy that insisted on minimizing the role of government in favor of the private sector.
    • As a leader of the Chicago School of economics, he had a widespread influence in shaping the research agenda of the entire profession.
    • The Economist hailed him as "the most influential economist of the second half of the 20th century…possibly of all of it".
  • 9. Monetarism
    • Favors Lassez-Faire attitude between Government and the private sector.
    • Generally supports low taxation, privatization of public holdings and deregulation.
    • Freidman’s logic was the freer the market the freer the people.
  • 10. Main Conference Agreements
    • Formation of the IMF and the IBRD (World Bank).
    • Adjustably pegged foreign exchange market rate system:
      • The exchange rates were fixed, with the provision of changing them if necessary.
    • Currencies were required to be convertible for trade related and other current account transactions.
    • All member countries were required to subscribe to the IMF's capital.
    • Using the US dollar as a global gold standard.
  • 11. Main Failures
    • International Trade Organization
      • The Conference also proposed the creation of an International Trade Organization (ITO) to establish rules and regulations for international trade.
      • 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.
  • 12. Failures Cont.
    • International Clearing Union
      • British Economist John Maynard Keynes argued for creating a system that would seek global trade balance by ensuring capital flowed by nations.
      • His solution was to charge interest on nations with substantial trade surplus… the US fought against this provision.
  • 13. International Monetary Fund (IMF)
    • A private international organization that oversees the global financial system by following the macroeconomic policies of its member countries.
      • focuses on exchange rates and the balance of payments.
      • IMF offers financial and technical assistance to its members, making it an international lender of last resort.
  • 14.  
  • 15. Voting Power in IMF
  • 16. Critique of the IMF
    • IMF policy makers supported military dictatorships friendly to American and European corporations.
    • Critics also claim that the IMF is generally apathetic or hostile to their views of democracy, human rights, and labor rights.
    • 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.
  • 17. Dictators and Debt
    • Argentina- 42% of its current debt was accumulated from 1976-1983 by a military junta.
    • 98% of Indonesia’s debt is from Suharto dictatorship.
    • 79% of South Africa’s debt was from Apartheid.
    • 98% of Zaire/ Congo’s debt came from Mobutu.
  • 18. Criticisms
    • Many nations owe the IMF money from dictatorships who wasted that money.
    • Financial aid is always bound to "Conditionalities"
      • including Structural Adjustment Programs.
    "The interests of the IMF represent the big international interests that seem to be established and concentrated in Wall Street." — Che Guevara , Marxist revolutionary, 1959
  • 19. World Bank
    • a family of five international organizations
      • responsible for providing finance and advice to countries for the purposes of economic development and eliminating poverty.
    • Usually offers loans for large scale products.
  • 20. Agencies
    • International Bank for Reconstruction and Development (IBRD),
      • provides debt financing on the basis of sovereign guarantees;
    • International Finance Corporation (IFC),
      • provides various forms of financing without sovereign guarantees, primarily to the private sector;
    • International Development Association (IDA)
      • which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees;
    • Multilateral Investment Guarantee Agency (MIGA)
      • which provides insurance against certain types of risk, including political risk
    • International Centre for Settlement of Investment Disputes (ICSID),
      • which works with governments to reduce investment risk.
  • 21.  
  • 22. Criticism
    • former WB Chief Economist Joseph Stiglitz, argue that the so-called free market reform policies in practice are often harmful to economic development.
    • Others criticize the one size fits all approach.
  • 23. World Trade Organization ( WTO )
    • international organization designed by its founders to supervise and liberalize international trade.
      • Grew out of existing trade alliances and agreements.
    • Deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process.
  • 24. Major Trade Agreements
    • Trade Related Investment Measures: Domestic rules on foreign investments
    • General Agreement on Trade in Services
    • Intellectual property — the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
    • Dispute settlement (DSU)
    • Reviews of governments' trade policies (TPRM)
  • 25. Criticisms
    • The WTO has not had any great impact in promoting growth in the “3 rd World.”
    • Other critics claim that the issues of labor relations and environment are steadfastly ignored.
    • TRIPs agreement has been used to prevent spread of generic medicine.