Bwis 75Th & Second Crisis Multilateralism

The Bretton Woods Institutions and the second crisis of multilateralism by Luke Fletcher, Jubilee Australia Research Centre July 2019 After 75 contentious years supporting expansion of the interests AUTHOR PIC of the Global North with the support of elites from the Global South, the World Bank and IMF now face a crisis of multilateralism in no small part of their own making, as failed economic policies have resulted in wide-spread skepticism of the effectiveness and equity of the international order they helped to shape. The first crisis of multilateralism own sterling currency area.i By the Dr Luke Fletcher is the time of the 1941 Pearl Harbour executive director of the Exactly 75 years ago, on 1 July 1944, attack, the US Treasury Department Jubilee Australia delegates of 44 nations gathered was already making plans for the Research Centre and a together at an old hotel in New new economic world order that it visiting scholar at the Hampshire to negotiate the blueprint sought to impose on the world, and it University of South for a post-war economic order. For would be a resounding endorsement Wales School of Social the next three weeks, with the war in of multilateralism in economic Sciences. He has been Europe and Asia still raging, the affairs. The chief architect was Harry involved with Jubilee delegates debated and negotiated Dexter White. Australia since 2005, whether to endorse plans drawn up where he has authored by Harry Dexter White, a relatively White’s new economic order, based and co-authored many obscure US Treasury economist, to around his IMF, would have three reports about Australia's establish the International Monetary outstanding features: first, it would impact on Papua New Fund (IMF) and the World Bank. allow countries to temporarily borrow Guinea and the Pacific currencies from each other, in the region. Luke has a PhD The previous world order, already hope that doing so would prevent from Cambridge in rocked by World War I, had not been competitive currency devaluations. Politics and able to survive the two great This feature arose from White’s International Studies disruptions of the 1930s: the Great conviction that the major cause of (2015). His other major Depression and rise of militant the Great Depression was the research interest is mid- fascism. The depression, and the competitive currency devaluations twentieth century chaos that followed – the departure implemented by raw materials political economy and of key countries from the gold exporting economies in South US foreign policy. standard, a retreat of countries America and elsewhere. Second, the behind tariff walls and the so-called IMF would discourage the ‘beggar-thy-neighbour’ policies – saw continuation of trade and currency a reduction in world trade, which blocs of enemies and allies alike and further exacerbated the US economic promote economic multilateralism in crisis initiated by the 1929 stock trade. Third, it would make the US market crash. The world was dollar, along with gold, the de facto fragmenting into regional economic international reserve currency. blocs: not only those led by the Axis Although the IMF was very much the powers, Germany and Japan, but centrepiece of his proposal, White even Britain, which established its also recommended an International brettonwoodsproject.org The Bretton Woods Institutions and the Second Crisis of Multilateralism Bank of Reconstruction and Agreement was passed by increasing number of now- Development (IBRD, or World Congress in the spring of 1945.ii independent former colonies, Bank) to give loans to aid post-war especially in Asia, looked at the reconstruction and aid The transformation of the Bank beneficent handouts that the US development in the so-called ‘third and Fund had given to its European allies for areas’. reconstruction and asked why they White’s Fund got started in 1946 could not receive similar gifts for John Maynard Keynes, who also and it set about determining the their economic development. The believed that the time had come to rules by which countries in balance US was not disposed, however, to end trade and currency blocs and of payments difficulties could give grants to this admittedly larger re-establish multilateralism, had borrow currencies from other Fund group of nations, except in the case developed an alternative proposal members. Given that so many of military hand-outs to those few at the same time as White’s. countries were reliant on goods allies deemed important in the Keynes had developed an from the US and Latin America (the emerging Cold War against International Clearing Union, ‘dollar area’) to kick-start their communist Soviet Union and which, unlike White’s creation, was reconstruction, everyone wanted China. a truly radical proposal because it dollars. But White’s critics had been put as much pressure on creditor right. The way the Fund was set up Through the 1950s, the US made a nations (like the US) to reduce their was too limited to get enough number of important reforms that balance of payments surpluses as it dollars to all the countries that would address this tension, and at did on debtor countries to reduce needed them. The World Bank the same time place the Bretton their balance of payments deficits. could lend only to particular Woods Institutions (BWIs) at the projects and was soon under the front and centre of the relationship To be sure, Keynes was worried control of conservative Wall Street between the industrialised and about White’s IMF amassing too bankers. By 1947, most European wealthy Global North and what much power and policy control over countries were facing a balance of was seen as the poor, dependent, debtor countries, one of which was payments crisis even as the US Global South. First, it relaxed the likely to be Britain. But Keynes, and economy was experiencing record IMF’s borrowing rules to encourage even some American experts, balance of payments surpluses. countries in balance of payments particularly at the Federal Reserve, distress to come to it for temporary also feared that neither the Fund Yet, instead of using the Fund or assistance, while at the same time nor the Bank would be able to the Bank to deliver the much- pioneering a new type of generate enough liquidity to deal needed dollars to European arrangement called Stand-By with needs of post-war economic countries, the American Agreements (SBAs). These construction. Nevertheless, at the Government chose to step in and agreements set out the criteria that Bretton Woods Conference itself, in buy the surpluses itself, then give nations would have to fulfil in order July 1944, the US was able to them to the Europeans, gratis. This to be eligible to borrow currency convince enough of its allies initiative, popularly known as the from the Fund. (mainly European, Commonwealth Marshall Plan, worked a treat: By and Latin American countries) to 1951 the major European Second, it created new bilateral and sign on to the plan; while many of economies were back on their feet multilateral facilities with which to them would have preferred Keynes’ and were less dependent on US disperse loans to Third World Clearing Union, they had long imports. countries. Some of these new before determined that it was not facilities would become part of the in their interests to obstruct an all- However, while this rather strange growing World Bank system, such powerful America from its preferred state of affairs had solved one as the International Finance solution. A huge public relations major problem when it came to Corporation (IFC), the Bank’s campaign in the US saw off Europe, it created a serious public private sector investment arm, challenges from isolationist forces relations problem when it came to established in 1956, and the in the US, and the Bretton Woods the emerging “Third World”. Latin International Development American nations and an Association (IDA), the Bank’s 2 At issue concessional lending arm, disciplinary headmaster. All the these theories were not able to established in 1960. In 1957, the MDBs and, increasingly, the confront certain realities that US also created the world’s first bilateral aid agencies, would insist undercut their policy logic: for loan-giving economic development on a country concluding an SBA example, industrialised countries agency, the Development Loan with the IMF before loans could be who produced the majority of high- Fund, which the Kennedy disbursed. The process of end products would always Administration would re-christen as conditionality – whereby endeavour to make it the US Agency for International countries would be more profitable to Development (USAID) three years required to make produce these later. Throughout the 1960s, as a reforms to earn In the meantime, products rather second wave of decolonisation these loans in than to sell swept the world bringing order to access the Bretton Woods either the raw independence to dozens of African official credits – Institutions materials that countries, most members of the had by now continue to do went into rich country club, the Organisation become well pretty much what making them for Economic Cooperation and established.iv or basic Development (OECD), developed they have always agricultural their own loan-giving aid agencies The first debt done commodities. A in imitation of the American crisis and the population example. This era also saw the neoliberal era explosion in the initiation of the regional Global South that was development banks, with the The BWIs had thus

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