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Chapter 9

Chapter 9: The International Financial Institutions

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McGill University
International Development
INTD 200
Warren Allmand

Chapter 9: The International Financial Institutions 12/5/12 1:17 AM Overview The International Monetary Fund, The World Bank Notwithstanding their official objectives of ensuring global economic stabilities and promoting poverty reduction à criticisms • From the left: their policies serve to entrench global poverty and exacerbate inequalities • From the right: the institutions are overly bureaucratic and increasingly irrelevant • Wallstreet Journal: expanding role of MNCs and global financial markets have lessened the need for the IMF and World Bank Timeline • Bretton Woods Conference of 1944 • Growing influence during the 70s and 80s financial and economic crisis • Promote SAPs à promote strong and stable economic growth The Origins of the IMF and World Bank Bretton Woods Conference, July 1944, New Hampshire End of WW2: Britain and US wanted to plan a new international order for the post-war era which was creating an economic system to promote trade and provide rules for economic relations • Stemmed from 1930s and economic conflict between major European powers • Characterized by flexible exchange rates 44 allied countries US had clear economic and military power Bretton Woods System • Establishment of fixed exchange rates between national currencies • Backed by US dollars à backed by gold • Intended to provide stable monetary conditions for expanding world trade International Monetary Fund • 1945 • set up to oversee the workings of the system and to manage any potential disruptions • each member paid a quota to the IMF à these funds could be used in economic hardships to ensure international currency stability International Bank for Reconstruction and Development à World Bank • Designed to make loans at preferential rates of interest to European countries devastated by war • Greatly diminished by the Marshall Plan • Viewed as an important element of Truman’s development project • Originally designed to provide financing for post war reconstruction and development projects • 1950s on: focused on providing loans to developing world countries at lower rates of interest than those of private international banks • IBRD was able to finance itself through loans from private international banks • The Bank funded projects to build physical infrastructure • International Development Agency (IDA) was created to provide loans to the poorest countries (1960) • Division of Labour within the world bank Governance Structures Voting rights are weighting according to quota subscriptions • Advanced industrial countries hold the majority of the vote • Voting power translates into direct representation at board meetings The Board of Executive Directors • Approve loans and guarantees • Set the administrative budget • Vet country assistance strategies • Make borrowing and financial decisions • 24 seats on board à chosen through shares The US and EU have the unilateral power to choose presidents • US of world Bank • EU of IMF The Turbulent 1970s Period of instability and crisis in the global economy US withdrew support for the Bretton Woods system • Ending the gold standard, 1971 • Broke the principle tenet of the Bretton Woods system • Undermined the stability of exchange rates Currencies of Industrial countries were allowed to float freely IMF • Shed the aims of Bretton Woods and recast itself as an international lender of last resort • Recommended that countries devalue their currency to strengthen their export sector • Expanded the conditions attached to their loans and increase their surveillance of policies pursued by borrowing countries o Countries were forced to accept implementation of IMF- sanctioned reform programs to re-establish stabi
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