The Bretton Woods Conference of 1944 birthed key institutions shaping global economics. The IMF and World Bank emerged to foster economic cooperation and stability, while GATT evolved into the WTO to promote free trade.

These institutions have significantly impacted global economic integration. They've encouraged trade liberalization, provided financial assistance, and set standards for international economic cooperation. However, their policies and conditionalities have sparked debates about sovereignty and development approaches.

The Bretton Woods Institutions

Origins and functions of IMF and World Bank

• Bretton Woods Conference in 1944 convened 44 allied nations in Bretton Woods, New Hampshire to establish a framework for global economic cooperation and prevent another Great Depression following World War II
• Resulted in the creation of the International Monetary Fund (IMF) and the World Bank to promote international economic cooperation and stability
• IMF promotes international monetary cooperation, exchange rate stability, and provides short-term loans to countries facing balance of payments difficulties (e.g., Argentina, Greece)
  • Monitors global economic trends and provides policy advice to its 190 member countries
• World Bank, officially the International Bank for Reconstruction and Development (IBRD), provides long-term loans and grants to developing countries for projects promoting economic growth and poverty reduction
  • Focuses on areas such as infrastructure (roads, bridges), education, health, and agriculture
  • Consists of five institutions: IBRD, International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes (ICSID)

Evolution of GATT to WTO

• General Agreement on Tariffs and Trade (GATT) established in 1947 as a provisional agreement to promote free trade by reducing tariffs and other trade barriers
• GATT operated through a series of negotiation rounds, each focusing on specific trade issues (Kennedy Round, Tokyo Round)
• Uruguay Round (1986-1994) led to the creation of the World Trade Organization (WTO) in 1995, replacing GATT as a formal international organization
• WTO provides a framework for negotiating trade agreements, settling trade disputes, and covers a broader range of trade issues, including services, intellectual property rights, and agriculture
• Promotes trade liberalization by reducing tariffs and non-tariff barriers, ensuring a level playing field for all member countries through the principle of non-discrimination (most-favored-nation treatment)
• Provides a dispute settlement mechanism to resolve trade conflicts between member countries (US-China trade disputes)
• Encourages transparency and predictability in trade policies, contributing to the growth of global trade and economic integration

IMF conditionalities and country impacts

• IMF conditionalities are policy reforms and measures borrowing countries must implement to receive financial assistance, aiming to address underlying economic problems and restore macroeconomic stability
• Types of conditionalities include:
  1. Quantitative performance criteria: specific targets for economic indicators (budget deficits, international reserves, external borrowing)
  2. Structural benchmarks: reforms in areas like tax policy, financial sector regulation, and public expenditure management
  3. Prior actions: measures countries must implement before receiving IMF assistance
• Conditionalities can help restore macroeconomic stability and promote long-term economic growth but may lead to short-term economic hardships (reduced public spending, increased unemployment, lower living standards)
• Politically controversial, as they may be seen as an infringement on national sovereignty and democratic decision-making (Greece austerity measures)
• Success depends on the country's commitment to reforms and its institutional capacity to implement them
• Critics argue that a one-size-fits-all approach to conditionalities may not account for country-specific circumstances and development needs (sub-Saharan Africa)
• Structural adjustment programs, often implemented as part of IMF conditionalities, aim to promote economic liberalization and market-oriented reforms

Global Economic Integration and the Bretton Woods System

• The Bretton Woods system established a fixed exchange rate system, pegging currencies to the U.S. dollar
• This system aimed to promote stability in international trade and prevent competitive currency devaluations
• The IMF played a crucial role in maintaining the fixed exchange rate system by providing loans to countries facing balance of payments issues
• The Bretton Woods institutions have been instrumental in promoting globalization through:
  • Encouraging free trade and reducing barriers to international commerce
  • Facilitating cross-border capital flows and investment
  • Supporting economic reforms and market-oriented policies in developing countries