Bretton Woods Institutions

The world war two had far reaching consequences on the social, economical, technological and political aspects of the main combatants. The worst hit nations included the European nations and Japan. Technological and economical systems of these nations either collapsed or were left in very poor states. There was an inordinate loss of life on a very large scale, additionally, the wanton destruction of property including industries, public and private property was previously unimaginable.As the war subsided, different parties were thinking of establishing a system that would facilitate the reconstruction of the affected economies in Europe and Japan. Indeed, even as the war continued, delegates representing several countries converged in Bretton woods New Hampshire (USA) in 1944 and established the Bretton Woods Agreement. These agreements were aimed at assisting in the reconstruction of the major economic systems ravaged by the war. The delegates signed the Bretton woods agreements in July 1945 and established the IMF, the World Bank and the general agreement on tariffs and trade (GATT).This paper examines the role of Bretton woods institutions in the reconstruction of the European and Asian economies following the end of World war two. The paper especially focuses on the objectives, the role, the achievement and the shortcomings of the World Bank in the post World war two period between 1945 and 1955. Aims and objectives of the World Bank The World Bank was formalized on December 27th 1945 when 28 of the member states ratified the Bretton woods agreement [Milward, A. S. (1984)].The main arm of the World Bank that was most active in the post world war two was the International Bank for reconstruction and development (IBRD). The core aims of the institution are set out on its inceptions were: †¢ To finance reconstruction projects in the countries ravaged by war. This was done through the provision of loans to these economies at very low rates of interest [Nic holas, C. and Toniolo, G. (1996)]. The loans were meant to facilitate reconstruction through investment activities that had high potential of generating income.Some of the areas to which loan money was channeled were the agriculture research and development, areas of human development such as education, health and recreation (Sports). Infrastructural development was also targeted to benefit from the loans since the war had brought most systems to their knees. Roads, railways, Airports, Seaports, Communication networks as well as Electrification networks were rebuilt through World Bank loans. In 1947 the World Bank extended $ 250,000,000 loan to France for reconstruction and this remains the biggest amount of loan extended to a single state [World Bank Webite-www.imf. org/archives]. †¢ To finance the rebuilding of industries in order to promote technological development among the European states and Japan. The post world war two period also provided numerous activities for indus trial growth and development of innovation culture that had been fueled by the war. Areas such as Air industry, weaponry industry, Communication industry as well as the Motor industries among others provided opportunities for investment and development [Axel, D. (2004)]. †¢ To seek ways of raising funds for development by issuing securities in the international financial markets.†¢ To promote private, local and foreign investment that was deemed worthwhile. This was done in collaboration with the particular state’s government as the guarantor of the loan. †¢ To give financial advisory services to member countries. The World Bank endeavored to give these financial services through provision of information and such in the areas of business development and finance [Hanson, J. L. (1972)]. †¢ To give grants as well as reviewing loan status of the member states. †¢ To give loans to fund specific projects.These were projects that were considered vital to the economies of member countries. †¢ To provide monitoring and evaluation services. The World bank indirectly sought to keep an eye on the progress made on the projects that it had founded to ensure that funds were not misappropriated or channeled to other projects not ear marked for funding [Hanson, J. L. (1972)]. The World Bank also took pains to evaluate the effects (economical and environmental) of the projects undertaken to ensure that they did not pose a threat to the people in the long run.Importance of the World Bank and the International Bank for Reconstruction and Development (IBRD). When the World Bank became operational in 1946, it had about $10 billion at its disposal for the purpose of giving Developmental loans to war-torn European nations [Ellis, J. (1999)]. The World Bank played an important role in the dispensation of capital that facilitated a fast rate of economic recovery. The World Bank was charged with the responsibility of identifying projects that were vi tal to the particular economy and also to provide the necessary support financial or otherwise for their completion.The formation of the World Bank provided member countries with a channel to pool together resources that enabled them to make speedy progress [Winter, J. M. 1980]. Working closely with the IMF, the World Bank assisted member countries with balance of payment problems and this helped in preventing an economic fiasco similar to the one of the great depression of 1930s[Harold C. L. (2004]. In addition the World Bank was to operate as an independent institution that was managing its own finances as well as its own investment programs.This ensured that it had money to lend to its members and not have to turn to the subscribers for more money every now and then for money to give as loans. By giving money in form of grants, which was not expected back, the World Bank boosted the economies of the needy states hastening the rate of recovery. At the same time the World Bank emba rked on research projects that positioned it strategically in the provision of quality information and advice to guide decision-making. The International Monetary Fund. The International Monetary Fund was established together with the World Bank.Among the stated objectives of the IMF are to foster global monetary cooperation, secure financial stability, facilitate the expansion of international trade, promote high employment and sustainable economic growth, help in the achievement of a common stable and flexible exchange rate and reduce poverty [Lipsey, Richard, G. (1989)]. The IMF was established to help in dealing with the anticipated post World War 2 growth as well as enhancing the same. It came in handy in assisting to reduce imbalances in balance of payment. It also helped in the regulation of the asset reserves of member countries.In recent years the IMF has continued to play an important role especially in helping developing nations to reduce poverty among the population. The General Agreement on Tariffs and Trade (GATT). The Bretton woods strategists also created this. It was formed with the aim of eliminating the existing trade barriers that existed between member countries in order to pave way for a speedy economic integration [Pollard, R. A. 1985]. This was a noble idea but GATT never became an institution but remained a set of agreement the US never ratified.Over the years since the end of World War 2, there have been many GATT talks and resultant agreements called rounds. The most famous is the Uruguay round of 1986 known for its ambitions. It endeavored to increase the GATT reach to new levels. In 1995 the World Trade Organization (WTO) replaced GATT. The WTO is a fully-fledged institution that performs the very purposes for which GATT or International Trade Organization (ITO) was originally designed to perform. European nations post war economic integrationThe Bretton woods agreements were designed to enhance the participation of the member coun tries in international trade through the removal of existing trade barriers [Grogin, R C. (2001)]. The escalation of technological advancement opened new opportunities in industrial developments and the loans offered allowed the member nations to take advantage of the arising opportunities. The allied nations were thus able to strengthen their collective economic dominance [Parillo, M. (2003)]. This was a goal that had been envisioned by the US even before the end of the war [Goldsmith, R.W. (1946)]. Critics of the US have argued that these self-serving motives were the driving force behind the US commitment in helping the European nations. Nevertheless the effects were increased economic integration of the western European economies. The Marshal plan This plan was by a large extent the brainchild of the US state department secretary George Marshall [Charles L. M. (1984)]. It was devised as a ploy to strengthen the allied nations and by extension strengthen the US standing in relati on to the communist force [Hogan, M. J. (1987)].Marshall plan became operational in1947 and was very successful in the four years it was in operation. Through this program $13 billion was dispensed to assist in the economic recovery of several European nations. The U. K, France, Netherlands, Italy and Germany received some of the largest amounts. These economies responded positively such that in less than seven years after the war, the economies were booming [Hardley, A. (1972)]. The Marshall plan contributed in economic integration because it eliminated some previously existing trade barriers [Harrison, M. (1988)]. Role of multilateral institutions in Post war Europe.Keen to prevent any further/future conflict of the World War 2 magnitude, the US oversaw the formation of the United Nations (UN) IN 1945. The other institution formed was the North Atlantic Treaty Organization (NATO). The United Nations was very active in post war period and among the first major contribution was the establishment of the Nation of Israel following the Jewish holocaust [Wallich, Henry Christopher (1955)] Additionally the United Nations was also active in providing humanitarian aid to refugees and all those affected by the war. Many historians associate the role of the United Nation with the speedy economic recovery.Critique Some scholars have criticized the world for being a western tool. By this they imply that World Bank employs economic policies that work in favour of the western countries. The Bank advocates for a free market economy this would mean that economies are fully liberalized. This has the potential of devastating weak economies and give advantage to the strong ones. Other weaknesses include lack of inflexibility in giving loans, delay in intervention usually with negative ramifications and Interference with the sovereignty of some member countries especially the poor nations.Conclusion The Bretton woods institutions played an important role in the reconstruction of the European nations after the world war two. The rate of the economic recovery that was experienced by these nations, would have been impossible to achieve without the intervention of organized an institution to provide support as well as checks and balances that were necessary in the achievement of this growth. Additionally the formation of the Bretton woods institutions allowed these nations to participate fully in the utilization of the opportunities that the existed in the post war period.This resulted in the economic boom, especially in the Western Europe between 1950 and 1970 that saw these nations recapturing lost glory and joining the mainstream economies as important players. However critics like professor Noam Chomsky of the Massachusetts Institute of Technology, argue that the World Bank is fulfilling its aims of alleviating poverty and promoting development- but are helping rich nations and individuals get richer, and making it impossible for poor nations ever to pay o ff their debts. Others have held to the argument that the commitment displayed by the U. S.A was just a facade that was meant to mask the real intentions of domineering US ambitions. This might have been true but it does not negate the benefits that were achieved. The multilateral institutions that were mostly founded in the 1940s played a significant role in brokering peace as well as ensuring that systems were in place that would allow for peaceful co-existence between nations . The world Bank continues to play a key role especially in assisting developing nations in areas of governance as well as in offering financial support required to enable them to achieve sustainable development.It is therefore important that the institution continue to adapt to the times in order to remain relevant to the changing needs of these nations. The Weaknesses must be turned to strength if the institution is to maintain the reputation it currently enjoys. References Axel, D. (2004), The Influence o f IMF Programs on the Re-election of Debtor Governments, Economics & Politics 16, 1: 53-75 Charles L. M. (1984). The Marshall Plan: The Launching of the Pax Americana. New York: Simon and Schuster. Pp 3,5,7-8. Ellis, J.(1999). Brute Force: Allied Strategy and Tactics in the Second World War Goldsmith, R. W. (1946), â€Å"The Power of Victory: Munitions Output in World War II† Military Affairs, Vol. 10, No. 1. pp. 69-80; Grogin, R C. (2001) Natural Enemies: The United States and the Soviet Union in the Cold War, 1917-1991. Lanham, Md. : Lexington Books. Hanson, J. L. (1972). A Textbook of Economics. Macdonald and Evans Ltd, London. 6th Ed pg 501 Harold C. L. (2004). Military Medicine† in Walter Yust edition. 10 Eventful Years Harrison, M.(1988) â€Å"Resource Mobilization for World War II: The U. S. A. , UK, U. S. S. R. , and Germany, 1938-1945† in The Economic History Review, Vol. 41, No. 2, pp. 171-192 Hogan, M. J. (1987). The Marshall Plan: America, Britain, an d the Reconstruction of Western Europe, 1947-1952. Cambridge: Cambridge University Press. John Maynard Keynes in his speech at the closing plenary session of the Bretton Woods Conference in Donald Moggeridge (ed. ), The Mason, Edward S. ; Asher, Robert E. (1973). The World Bank Since Bretton Woods.Washington, D. C. : The Brookings Institution, 105-107, 124-135. Lipsey, Richard, G. (1989). An Introduction to Positive Economics. English Language Book Society, 7th ed. Pp 7255. Milward, A. S. (1984). The Reconstruction of Western Europe, 1945-51. London: Methuen. Marshall, G. (1947) â€Å"Against Hunger, Poverty, Desperation and Chaos† at a Harvard. (Can be read from http://www. foreignaffairs. org/19970501faessay76399- p0/george-c-marshall-The speech. ) Nicholas, C. and Toniolo, G. (1996). Economic Growth in Europe Since 1945.Cambridge: Cambridge University Press. Pp 3-5 Parillo, M. (2003), â€Å"The Pacific War† in Richard Jensen et al, eds. Trans-Pacific Relations: Amer ica,Europe, and Asia in the Twentieth Century pp. 78-117. Pollard, R. A. (1985). Economic Security and the Origins of the Cold war, 1945-1950 (New York: Columbia University Press, pp. 8. Wallich, Henry Christopher (1955). Mainsprings of the German Revival. New Haven: Yale University Press,. Pp 123-267 Winter, J. M. â€Å"Demography of the War†, in Dear and Foot, ed. , Oxf Bretton Woods Institutions The Second World War featured a host of nations battling all around the world for supremacy; it was believed that the victor would have the privilege to shape the future of the world and so it seems. The Allies finally emerged victors in 1945; among them were the powers of today, U. S. A. , China, France, U. K, and Russia. Behind them was a host of other States that had show support during the difficult times. In 1945 the Allies had met in Bretton Woods U. S.A and came up with strategies that would ensure that he mistakes that had been made over the years would be avoided; it was in this conference that the Bretton Woods Institutions were formed. Among them were the International Bank for reconstruction and Development (IBRD) today known as the World Bank and the International Monetary Fund. The two were formed after a number of states ratified and agreed to the rules as stipulated in the agreement at Bretton Woods (Veseth 2002).The main role of these institutions was to ensure that the mistakes of the past were not repeated; they were to ensure that the trade among nations would flow freely, to stabilize the world’s financial system, and to encourage international investments (Lechner 2009). In other words these institutions were to assist in the reconstruction and development of Europe after the war; many of its signatory members were European States. It was therefore a Western Idea for the Development of capitalist oriented economies.This paper will look at the success of these institutions decades later. Today the two institutions are still there; working towards the development of economies. After their formation the two institutions successfully managed to rejuvenate the European Economy. Europe then went a head and through a series of agreements, starting with the integration within the coal and steel industries, formed the European Commission and later on the European Union was formed. It seeks to establish a common Europe; with a common currency , constitution, economy to mention a few (Veseth 2002).It is therefore correct to say that the Bretton Woods system was successful within Europe as it succeeded jump starting the economies and later on the same economies merged to form a single unit; looking at the objectives, there will always be free flowing trade within EU, by using a single currency to trade within Europe means that the exchange rate is stable thus enabling the Euro to function any where in Europe and finally as it is evident for quit some time the economies of Europe along side those of the world have been stable.To add to this there has been significant growth for quite some time. It is therefore true to say that the strategy worked (Mansbach & Rhodes 2009 and Spielvogel 2008). The system was also tried within the African economic landscape with different results; the opposite happened as economies that were once growing with high rates slumped down. It was indeed a western idea for a western economy. Some may argue that the strategy worked in Europe because it was created for that purpose.Unfortunately after the Second World War, the world was once again divided, this time along ideological lines; Capitalism versus Socialism. On e advocated for a market oriented economy while the other called for a strong state control to prevent the exigencies of the very same market. Europe was also divided along the same lines. Eventually Capitalists emerged victorious in 1989. This cemented the role of the dollar within the global Economy. The U. S. A dominated the Global economic scene; just as they intended soon after the formation of the Institutions.This has worked for years; the dollar has managed to give confidence and earn respect of economies in the world for quite some time. The dollar for quite some time was the only universally accepted exchange rate, it was the standard. Unfortunately this was also the mistake the system had (Spielvogel 2008). Over dependence on the dollar was not the ke y idea behind the founders of the system. I believe it was imposed to ensure the dominance of the U. S. A in the global system; they are the most powerful and everybody wanted to be allied to the West.This over reliance has over the years made the system shaky; the objectives were to ensure the stability of the global financial system. Unfortunately this was to be proven other wise with the occurrence of a second major global financial crisis; characterized by a weakened dollar and therefore instability within the financial system, a reminder of what happened when the system was over reliant on gold back in the 1920s and 1930s. This is therefore a proof that the Bretton Woods institutions are long over due for an update (Lechner 2009 and Veseth 2002).In conclusion, the Bretton Woods system was a great idea for the unification of the Global financial system; it has successfully seen the world united through globalization. The whole system is now interconnected and economies are depen dent. It has also seen the development of Europe successfully to what is seen today; the European Union. Unfortunately it has failed to ensure that the mistakes of the past are not repeated; the recent financial crisis was a repeat of the Great depression that lasted for almost a decade between 1929 to late 1930s.Therefore the strategy was a good idea but it needed the input of all economies and therefore interdependence among states and economies. Reference: Lechner Frank J. (2009). Globalization: The Making of a World Society. Chichester U. K; Malden MA: Willey-Blackwell. Mansbach R, W & Rhodes E, J. (2009). Global Politics in a Changing World: A Reader. 4th Edition. Boston: Houghton Mifflin. Spielvogel Jackson J. (2008). Western Civilization Alternate Volume: Since 1300. Wadsworth Pub Co. Veseth Michael (Ed). (2002). The Rise of Global Economy. London: Fitzroy DearBorn Publishers.