From Bretton Woods to the Information Age

CHAPTER 17 From Bretton Woods to the Information Age

The general evolution of the international monetary system since the Bretton Woods conference has been a movement away from rules and toward cooperation. Increased information has played the role previously occupied by a legal or quasi-legal framework. This development constitutes the fundamental challenge, and opportunity, faced by international financial institutions. The satisfaction of this demand for the reliable provision of information and analysis will become their principal raison d'etre.

The Historical Argument

The construction of the postwar international monetary system came as a result of a general agreement that a repetition of the economic and political nationalism of the 1930s could and should be avoided. The interwar experience had provided a vivid and terrifying demonstration of how the collapse of the economic order could bring political and social fragmentation. In the new order, a commitment to keep stable but adjustable exchange rates would eliminate the temptation to engage in competitive devaluation. Controls on capital movements would eliminate the big speculative flows that had destroyed the exchange rate regime of the interwar period. The essential insight of the new vision was that harmonious interstate relations involved a willingness to agree on the surrender of some aspects of national sovereignty. The agreements produced at Bretton Woods combined a vision of a liberal world economy with a rule. The rule's primary purpose was to constrain

586 "I seem to be without any small change. Would you accept a 'Special Drawing Rights' voucher?" 588 INTERNATIONAL MONETARY COOPERATION national economic policies in cases where otherwise the interaction of different national strategies might cause disaster for the world as a whole (in currency policy, competitive devaluations; in trade policy, the application of protectionism). Apart from this, it would preserve the policymaking options ("sovereignty") of nation-states. At the time of Bretton Woods, a vivid memory of the 1930s saw the requirements of the international order as frequently in conflict with the imperative of building a more just and stable domestic order. The conference aimed at providing a solution to this dilemma. The main attraction of the rule was that it was impersonal and largely automatic. States were obliged under the terms of their legislation accepting Bretton Woods to maintain fixed exchange rates. The pursuit of inappropriate policy would lead to danger signals, in the form of balance of payments imbalances. A state could then either take corrective action (adjustment), if necessary with the assistance of the resource pool created in the IMF; or, if it was judged that the imbalance reflected a fundamental disequilibrium, the exchange rate could be altered with the approval of the Fund. The commitment to keep the exchange rate fixed would by itself provide sufficient limitation of the room for national policy maneuver. A further function of the Fund was to create through the quota mechanism an additional pool of reserves (it functioned analogously to a credit union). The goal was to ensure that, in a period in which outside the United States a general shortage of reserves existed, this limitation would not stand in the way of the movement to liberalized trade and exchange convertibility. This system had a strong element of automaticity, but one that would and could never be total. The principle of surveillance by the Fund developed out of the necessity of judging whether a member country's needs and policy objectives corresponded to a situation in which the use of the Fund's resources would be appropriate; as well as out of the commitment of members to consult if they maintained the transitional regime (under Article XIV of the Articles of Agreement) in which exchange controls might still be tolerated. In other words, the Fund as a financial institution was required to use its lending to promote a specific outcome. Its resources were to be used "to facilitate the expansion and balanced growth of international trade, and contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members." The Articles also recognized the importance of the new body in the exchange of information and views. Its purposes had already been defined as "to promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems." 17 From Bretton Woods to the Information Age 589

The basic commitment to rule-guided liberalization inherent in the accep- tance of convertibility laid the foundations for a system that created unprece- dented rates of economic growth and increased prosperity throughout much of the world. However, there were two major surprises. First, the new institution never controlled world liquidity (and indirectly the world money supply) in the way originally envisaged. As the global economy grew, IMF quotas accounted for ever smaller shares of international reserves. Even the new IMF "money" of the 1960s, the SDR, which actually reproduced quite faithfully the intentions of the founders of Bretton Woods, came to represent only a very small part of the world's reserves. Instead national authorities, and increasingly also the substantially uncontrolled operations of the Euromar- kets, created their own money. The second development, largely unforeseen at Bretton Woods, was one that both contributed greatly to the dynamism of the world economy and also altered the character of the monetary order. This development was the emergence of large capital movements, freeing money from national control. The original agreements had involved an obligation to liberalize current accounts, but—among other considerations—the primary rule (fixed exchange rates) involved the necessity, or at least the possibility, of controlling capital flows. When the world returned after the war to nearly general convertibility at the end of the 1950s, and accepted the corresponding Article (Article VIII) of the Fund's Articles of Agreement, this meant convertibility on current account only. However, even at this early stage, substantial capital movements developed. The access to resources they brought constituted one of the main incentives to many countries to adopt convertibility. Capital movements brought not just the possibility of increasing national investment levels, they were also often associated with flows of skills and technology. This was true of Spain in the late 1950s, and then of Latin American countries (where the initial experiment in convertibility was often unsuccessful) and East Asia (where some spectacular successes occurred). As capital flowsdeveloped , the problems of monetary management became more complex. One instance of the new difficulties was the effect of capital inflows on the domestic money supply. Another example was that capital flows allowed a financing of current account deficits. Initially, current account deficits were believed to be the major problem requiring international action; but capital flows might make them less of a problem. Inflows—foreign borrowing—could offer an easy and at least temporary alternative to immediate adjustment. Obviously, such flows depend on the verdict of the lenders— the market—and cannot necessarily be maintained indefinitely (particularly if the resources are chiefly used to pay for increased consumption). The 590 INTERNATIONAL MONETARY COOPERATION availability of capital often simply offered the possibility of making a choice about a time frame for adjustment; but governments (with often limited political time horizons reaching to the next elections) wanted to take advantage of such a choice, and defer the adjustment as a problem to bequeath to their successors. As a result, there were temptations not to recognize underlying economic problems. The new difficulties were the underlying rationale for the extension of IMF consultations to include also the member countries that had gone over to full convertibility under Article VIII of the Articles of Agreement. Such consultations might give advance notice of the likely emergence of economic problems. Throughout the 1960s the international community repeatedly tried to develop a systematic approach to "early warning signs." At the same time, the availability of funds on capital markets altered the demand for liquidity. In cases when confidence was maintained, there would be sufficient liquidity as a consequence of private lending. Such funds, however, would not be available exactly when they were needed—in a crisis. In cases where confidence disappeared, the Fund became more necessary than ever as a substitute for the private market, as a way of financing imbalances and restoring expectations of stability: in short, as a reserve center or a lender of last resort. There are two ways of providing such assistance: the first, immediate support in the case of a market panic, in order to forestall an imminent market failure, is undertaken by central banks or (for many industrial countries) by the central bankers' central bank, the Bank for Interna- tional Settlements (BIS). The second, in which policy changes as well as a persuasion of financial markets are required to restore confidence, after a market failure has already taken place, has been the domain of the IMF. (The IMF could potentially play a larger role in the former operation also— perhaps not so much directly, by trading on its own account, but by using its resources to help to unwind the substantial swap positions built up by central banks in cases of intervention, when they are not unwound as an immediate consequence of the re-establishment of confidence.) The flows of capital brought an increasing instability to the system, and eventually destroyed the par value system between 1971 and 1973. As the instability became more apparent in the late 1960s, the transfers of funds across frontiers increased dramatically; once the system was evidently in crisis, between 1971 and 1973, they became even larger. Fixed parities might have survived somewhat longer had it not been for the temptation that a system of rules offered to some of its members to exploit the rules in order to obtain national advantage. Two countries issued the major reserve currencies. For a long time, the system had tolerated the problems of the lesser 17 From Bretton Woods to the Information Age 591 reserve currency (the British pound) and the constant problems it generated internationally, first in slowing the move to general convertibility, and then in the 1960s in producing repeated balance of payments crises. One of the reasons for the failure systematically to deal with the problem of the pound sterling lay in the U.S. desire to protect the pound out of a sense of solidarity between the reserve currencies. The dollar's reserve role had insulated the United States from the need to undertake adjustment in the par value system; the result had also generated permanent surpluses in other countries as the counterpart of the American deficits. This U.S. privilege had been a function of the operation of the par value system on the basis of dollar reserves; but when at the end of the 1960s the United States began to view the dollar in the same way as Britain had long treated the pound, as a national resource to be manipulated for the sake of national advantage, the system soon collapsed. Subsequently, other countries that became major issuers of reserve currencies have been frightened to use (or abuse) the system in this way, and highly conscious that adding to international reserves through the buildup of current account deficits courts the risk of a dramatic and unpleasant reversal of confidence. A solution to this challenge that maintained the par value system would have involved an earlier and orderly devaluation of the dollar relative to gold and other currencies; but there existed no institutional way of obliging the United States to take such a step, and at the time almost all commentators doubted whether it was possible at all. The strain on the U.S. position increased as the other nonsurplus countries implemented their own devaluations relative to the surplus economies (Germany and Japan), and they at the same time of course had to alter their parity with respect to gold and the dollar. Many members began to see the system as not beneficial, but rather as a mechanism for forcing them to adjust and suffer from the effects of U.S. monetary expansion. This was the basis for an attack on the U.S. "hegemonic" position, or on what General de Gaulle called the "exorbitant privilege." One possibility of dealing with the strains was sometimes touted in the 1960s, but fortunately dismissed: an imposition of capital controls. If such controls had been widely adopted, they might have rescued the par value system; but they would have also severely constrained the future development of the world economy. The emergence in the 1950s and 1960s of substantial capital movements through "leads and lags" on the current account had in any case abundantly demonstrated the futility of such control. The desire to halt capital movements, or at least to separate "good" or "productive" from "bad" or "speculative" flows, remained quite powerful, partly because 592 INTERNATIONAL MONETARY COOPERATION governments wished to prevent markets exercising a vote of confidence on their policies, and partly because the adherents of a fixed rate system saw this control as the only path to realize or preserve their dream. The search for a new order was extremely painful. The wish to avoid a system of exchange rates too rigidly fixed, which had constituted one of the problems of the 1960s and had helped to propagate inflation internationally, now produced a system whose flexibility verged on anarchy. In the event, the new system removed limitations on national monetary policy, and consequently fanned inflation even further. Thus inflation now came to be seen as a product of an international system of flexible exchange rates, as well as a result of the fixed par values of the classic Bretton Woods system. In other words, inflation appeared as a problem of monetary discipline that might result regardless of the exchange rate regime. At the same time, the differing extent of countries' willingness to tolerate high levels of inflation produced a sharp divergence in national policy approaches, caused further problems in financing, and provoked doubts about whether the private sector could handle the flows. The coordination problems produced by the pursuit of very different national strategies strained the international order yet further. The collapse of the Bretton Woods currency rule led to increased temptations to apply protectionism (some writers began to refer to the phenomenon as the "new protectionism")- After the collapse of par values, the world experienced a series of apparently incessant shocks and crises: the dollar shock, then the oil shock, then the inflation shock, then another oil shock, then debt. In the 1980s and 1990s, the dramatic shifts and reversals of economic expectations caused by political events continued with the shocks of the invasion of Kuwait, of German unification, and of the collapse of the Soviet Union. World trade continued in fact to grow in the 1970s and 1980s, although at slower rates. That growth provided a testimony to the vitality of the system, and to the way previous successes had produced a demonstration effect of the virtues of liberalized trade. In the absence of the "hard law" provided by the rule-based order of the classic Bretton Woods regime, and in the presence of greater possibilities offered by the availability of capital imports, the need for effective surveillance became much greater. This requirement for a working international system was accepted in the new Article IV of the Second Amendment (1978) of the IMF's Articles of Agreement, which stated the principle of the Fund's "firm surveillance" over members' exchange rate policies and also specified (Section 1) that "each member undertakes to collaborate with the 17 From Bretton Woods to the Information Age 593

Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates." Some of the search for effective means of channeling international cooperation, however, took place outside the context of the universal institutions created in Bretton Woods. Since 1945, a large number of institutional mechanisms had been evolved for reconciling the desire for an international economic order with the domestic concerns and priorities of nation-states. Not all of them saw the problems in terms of the requirements of a global system. The most general channels of cooperation were the Bretton Woods institutions, the IMF and the World Bank, but they played only a subordinate role in the first postwar decade. As a result, more specific institutions were required to deal with the immediate postwar problems. The General Agreement on Tariffs and Trade (GATT) was the replacement for the still-born International Trade Organization (ITO) and would manage trade liberalization by providing a mechanism for negotiating abolitions of trade quotas and tariff reductions. (It would take almost 50 years for the GATT to be transformed into the World Trade Organization, launched on Jan- uary 1, 1995.) The Organization for European Economic Cooperation (OEEC) would coordinate the process of European economic integration. These institutions proved remarkably successful, and lived on in much modified circumstances. The GATT remained as a crucial forum for trade negotiations, even though the 1970s gave rise to a "new protectionism" in which devices such as voluntary export restraints were instituted with the specific intent of circumventing GATT rules. (In addition, large parts of the world's trade—agriculture from the beginning, textiles after the 1960s, the trade in services and intellectual property—escaped the rule of the GATT.) The OEEC continued as the Organization for Economic Cooperation and Devel- opment (OECD), with general policy coordination tasks for the industrial world. Other groupings also worked hard at the same task: the G-10, and then, later, the G-5 finance ministers (later G-7), the G-7 summit process. The G-10 arose out of the need to supply additional resources in the absence of a large IMF quota increase, and then evolved institutionally as a forum for more general discussion. With the advent of the G-10, a division of the world institutionally into blocs of "powerful economies" and "developing countries" began. Developing countries produced their own institutional answers to the coordination attempts of the developed world: the United Nations Conference on Trade and Development (UNCTAD), the G-77 within the UN framework, or the G-24 within the IMF and World Bank setting as a response to the power 594 INTERNATIONAL MONETARY COOPERATION and influence of the industrialized G-10. The Committee of Twenty, and its successor, the Interim Committee, remained attached to the ideal of global discussion of common economic problems. At a regional level, the proliferation was even more striking: regional free trade associations and multilateral development banks. The later coordination institutions that followed the Bretton Woods twins arose out of quite particular circumstances: the OEEC to cope with postwar reconstruction, the G-10 to agree to the provision of additional lending for the IMF, the G-5 out of a successful informal discussion group, and the summit as a result of the application of the G-5 principles at the head of state level. A new G-24, composed initially of OECD countries, was created in 1989 as an ad hoc group for the coordination of economic assistance to Central Europe. The successful institutions outlived the circumstances of their birth and developed more general functions. (Perhaps the most striking example of adaptation is the BIS, originally conceived as a depoliticized way of making German reparation transfers after the First World War, but which rapidly became a crucial instrument for central bank cooperation and coordination.) The outcome was a broad spectrum of institutions with rather different origins and histories, but with common and even competing concerns.1 Helmut Schmidt, who was himself responsible for a part of this institutional proliferation, explained that there existed no single world organization that could control a world economic crisis. Instead a "wild growth" of institutions discussed and reflected on economic issues.2 In this dense network, regular meetings between the leading national policymakers and officials became routine, and such close contacts undoubtedly fostered international cooperation. They also sometimes, however, provoked suspicions and misunderstandings.

The Problems

Two problems have dogged this multifold institutionalized cooperation: first, since changes and news of impending alterations offer the controllers of private funds the possibility of making dramatic gains, many market- sensitive policy issues became very hard to discuss and analyze. The more substantial the capital flows, the greater the extent of sensitivity and vulnera- bility. This was especially true of exchange rates, and of central bank intervention on exchange markets—both in the fixed and in the flexible systems; but it is also true of interest rate policy. Second, strong political pressures 17 From Bretton Woods to the Information Age 595 and incentives led to an attempt to orchestrate policies in a narrower setting, to create "our small group." As regards the first problem, the most remarkable postwar example of the increased difficulty of practical surveillance is perhaps to be found in the contrast between the alacrity with which parity alterations were discussed by the IMF as a tool of policy and a facilitator of adjustment in the late 1940s, and the reluctance of the G-10, the OECD, and the IMF to consider parity alterations for the major currencies in the 1960s. The extreme receptiv- ity of markets to rumor, combined with the political delicacy inevitably associated with issues affecting national prestige, produced what amounted to a tabu on discussion. There was a fear that grew with the threats to the credibility of the system that any dent would make impossible the attaining of any new stability. In particular, the U.S. unwillingness after the late 1950s to consider a change in the dollar parity of gold, despite balance of payments deficits, produced near paralysis. It led to an institutional incapacity to deal with the needs of the global economic situation. In these circumstances, the only hope for change lay not in additional discussion, but in deliberately obstinate or destructive behavior. The china shop needed a bull, and in the circumstances of 1971 John Connally played that part with considerable verve. One of the major tasks of a reformed system, the IMF's Executive Board concluded, would be to establish "criteria and procedures for orderly change which will accord to the United States, as well as to other members, a due measure of initiative in the effective exercise of exchange rate flexibility."3 This story, from the classical Bretton Woods era, of increasing inability to discuss market- sensitive problems was repeated (with different institutional actors) in the story of the European Monetary System (EMS).4 In the early years after the creation of the system in 1979, there were few problems in both discussing and undertaking parity alterations. Later, from the mid-1980s, consideration of parities within the EMS became so politically sensitive, within the Euro- pean Community, but also consequentially within the OECD and the IMF, that it was in practice ruled out. This dilemma provides an example of a more general problem, that an institution responsible to member governments finds the discussion of market- sensitive material very hard, as governments may resent the implications of second-guessing the market, and can only be persuaded by arguments about what the market is likely to do after the market has actually done it. For instance, in a different context, it is possible to imagine the outrage if any international institution had given a clear and statistics-laden warning about the extent of bank exposure to middle-income debtors in the summer of 596 INTERNATIONAL MONETARY COOPERATION

1982 and thereby touched off a panic flight of funds: it needed to wait for the crisis to be triggered by market sentiment. The same consideration would apply to any warning about the increasingly serious overvaluation of the Mexican peso in 1994. Advice about this kind of problem can be given only on the basis of extreme confidentiality. The second problem that has persistently affected the world economy is that of a too narrow or too partial framework for cooperation. Particularly when global cooperation failed or faltered, states looked to a more limited setting generated by geographic proximity or by common security concerns. The initiatives at European monetary integration in the late 1960s, and again one decade later, began primarily as responses to the problems of the U.S. dollar. Regional or selective forums for cooperation might on occasion have offered an easier way to obtain agreement, but they inevitably found it hard to discuss structural problems affecting the whole of the world economy. They did not necessarily provide a stepping stone for increased global cooperation; sometimes they constituted a diversion. This lesson appeared repeatedly as part of the story of European monetary integration. Some Europeans saw the creation of a European zone of monetary stability as a way to greater world stability, a bold European initiative that took the place of a failed global effort at stabilization: first there would be an EMS, then negotiations to make the United States de facto a member of the system. This strategy did not work. The difficulty inevitably inherent in partial solutions was also evident in the important and occasionally successful role played by the G-5 or G-7 in fostering world economic cooperation. Not all the world's balance of payments problems were between the G-7, and, as a result, G-7 negotiations could hardly be expected to produce a solution. Some participants responded to the problem by demanding a return to a smaller framework, a G-5 or even a G-3. The G-7 summit had begun as a response to the enormous challenge posed by the great economic dislocations of the early 1970s. It had survived in large part because of the mixture of economic and security calculations characteristic of the later stages of the Cold War. During the 1970s, the major economic problems that followed from the oil embargo and the price increases and then from the recycling of petrodollars had been treated, especially in the United States, as primarily a security threat. In the 1980s, major economic issues, such as the construction of a Soviet gas pipeline by West European firms, again were thought of in Washington primarily as the instruments through which superpower rivalry might be conducted. Then, at the end of the Cold War, security problems raised by the collapse of the Soviet empire provided the major theme for summit discussions. 17 From Bretton Woods to the Information Age 597

After the end of the Cold War, however, some commentators began to ask more fundamental questions. Who are the seven of the G-7? They are certainly not, as they are most frequently described in newspapers and by many politicians, the world's seven largest economies. The seven largest in 1993 as measured by GDP, calculated on the basis of purchasing power parity, were the United States, China, Japan, Germany, India, France, and Italy.5 Neither are they the seven most "advanced" economies, if this term is measured in per capita income (for 1990, the seven richest would have been Switzerland, Japan, Norway, Finland, Sweden, the United States, and Denmark).6 Other criteria that might have been used are equally inapplicable. They are not the seven economies in which the world's most important financial centers are located. The seven largest stock exchanges, measured by volume of transactions, in 1992 were the United States, Germany, Japan, the United Kingdom, Taiwan Province of China, France, and Korea.7 The closest fit of the G-7 is with the list of the seven leading exporters: in 1991, the United States, Germany, Japan, France, the United Kingdom, Italy, and the Netherlands (in 1975, the list was similar, with only the order of the Netherlands and Italy reversed). Fundamentally, however, the G-7 are composed of some powerful economies, which developed, as a matter of historical chance, into a very powerful institutional grouping. There have been attempts to enlarge the grouping. In the late 1970s, as the oil producers became a major force in the world economy, they asked for representation at world economic summits. In the early 1980s, the Prime Minister of India pressed for the participation of some of the large developing countries. In the early 1990s, some of the G-7 felt embarrassed by the presence but not membership of Soviet or Russian leaders, and argued that Russia should be admitted to the club. There was also some recognition that speaking about economic problems and attempting to produce solutions just within the G-7 was inadequate. Before the 1992 summit, the U.S. Treasury Secretary held separate talks with Latin American finance ministers.8 In 1993, the Indonesian President visited Tokyo before the summit to explain the position of nonaligned countries. But in general, most of the G-7 felt that any enlargement would open a Pandora's box and would destroy the effectiveness of the process. The debates about enlargement reflect the highly problematic legacy of a mixing of security and economic concerns characteristic of the 1970s and 1980s. As the U.S. position relative to other noncommunist industrial countries weakened in the course of those decades, it needed to find new ways of implementing its political concerns. In reordering the institutional management of the world economy after the end of the Cold War, it 598 INTERNATIONAL MONETARY COOPERATION would be both inappropriate and damaging if the mixing of security and economic concerns so characteristic of the previous 40 years were to be continued. This linkage greatly complicated the task of international policy coordination at the highest political levels, and continues to present problems. For example, admitting a few more countries to the G-7 process simply because they are potentially worrying security threats, or because they possess nuclear weapons, is not a rational way of handling the problem of global economic coordination. Such a partial extension would leave out too many important interests and actors in the global economy: the overwhelming majority of developing countries, the newly industrializing economies, and so forth. It is worth recalling that the first attempt to achieve international cooperation in trade as well as in diplomatic affairs, the Amphictyoni Councils held at Delphi, is generally thought to have failed because the councils "were never universal and many important states remained outside."9 Many new areas have recently emerged in which there is a risk of a confusion of security policy and economic policy, of mixing high politics with the more mundane business of commerce and finance. Making assistance or support dependent on a complex political conditionality (on human rights, for instance, or on military spending) will only politicize the operation of the international economic order. It is true that many countries, including some developing countries, reduce their economic potential by excessive military spending;10 but there are also many wholly legitimate security concerns, and it is equally clear that without adequate protection against external attack, economic development too is threatened. The best way to obtain the economic benefits associated with a reduction in military expenditure is by persuasion, rather than an extension of conditionality. It is also true that a good deal of evidence shows that democratic societies in which human rights are respected, and which enjoy a higher measure of social stability, perform on the whole better economically than controlled societies.11 But processes such as democratization do not lend themselves to the formulation of simple measures or rules, of the kind provided for instance by balance of payments statistics. These kinds of interventions are almost bound to provoke the response that they favor the power interests of a particular group of states. Two highly controversial issues of 1994-95—the economic restructuring of the former Soviet republics and the Mexican peso rescue package—have suffered from overpoliticization to the extent to which they were conducted outside the framework of a clearly understood body of rules, and outside the institutional setting of 17 From Bretton Woods to the Information Age 599 the IMF. The virtue of the Bretton Woods mechanism was that it created a depoliticized way of dealing with economic issues.

The Chances

An increasingly prevalent view holds that the market alone should do the job of providing information: that the institutional framework of Bretton Woods was highly effective in restoring the world to the near-complete capital mobility that prevailed in the golden years before 1914, but that the fundamental task of rebuilding a liberal, globalized economy has been accomplished. (There may still be some way to go, but a large part of the journey is done.) Many responsibilities are currently being transferred to the private sector, where they are often better handled than by public authorities. In practice, however, governments continue to wish to direct and regulate capital movements in more or less concealed ways—through fiscal measures, regulatory directions, jawboning about the appropriate level of exchange rates. Markets remain liable to faddishness or herd instincts. In consequence, there is still a need for an institution to examine and compare national policies that affect the movement of capital internationally. If in the years after Bretton Woods, the emphasis was primarily on the liberalization of the current account, the period after the breakdown of the par value system saw first increasing debate about the desirability of liberalizing capital flows, and then a need for the effective management of that liberalization. The need arose for international judgments about the use or abuse of capital market liberalization for purposes that might be beneficial to individual participants but could also be collectively harmful. In this regard, the two problems outlined above appear particularly acute: the difficulty posed to policy discussions by the sensitivity of markets and the volatility of international capital; and the proclivity to look to partial or regional answers to the demand for enhanced cooperation. What answers can be found to these long-standing dilemmas? The first issue—the tabu on discussion of some policy issues—can be at least in part solved by the creation of a common context (of fiscal consolidation and a stability-oriented monetary policy), in which the expectations of the market are stabilized (and markets are as a result less sensitive). If policy is conducted in a longer time horizon, there are fewer abrupt changes to which markets will react violently, or attempt to anticipate. The IMF has consistently insisted 600 INTERNATIONAL MONETARY COOPERATION on structural reforms and structural adjustments in order to create a stable framework of expectations: including the opening of markets, more flexible domestic product and labor markets, an opening to capital movements, as well as fiscal and monetary behavior conducted in terms of a stable medium- term strategy. The best means of lengthening the time horizon is to mount the cooperation process in as broad a context as possible (thus providing the answer to the second problem, that of partial cooperation). It was an essential part of the vision of Bretton Woods that the institutions created to supervise and channel economic cooperation should be universal. With the end of the Cold War, that promise of universality has at last been virtually fulfilled. The membership of the IMF is now nearly identical with that of the United Nations; and the GATT has also gained members (see Table 174). Designing a universal financial institution, however, is not as simple a task as may appear at first sight. As a financial institution, the conduct of the IMF is determined by a set of rules and procedures that distinguish it from other universal institutions, notably the United Nations. The principle of weighted voting, approximately in line with the quotas of members, has always been an essential feature of the Fund's operations. Voting is in practice not important in the overwhelming majority of decisions made by the Execu- tive Board, which tends to operate rather through the process of discussion and the emergence of consensus. But it is critical in making basic policy decisions, such as the creation of new facilities, or the issue of SDRs. Weighted voting was much criticized, especially in the 1970s, when a highly politicized debate over the shape of international institutions flared up. The advocates of change believed that a one-member one-vote principle, or a transfer of responsibilities to the United Nations General Assembly, or some other body operating a similar voting rule would be more democratic and in particular produce an international financial order more responsive to the concerns and needs of developing countries. The defenders of the existing system pointed out that weighted voting was more appropriate to a financial institution, since votes would result in commitments and obligations that were proportionate to quota size. These discussions were only an extreme example of the difficulties sur- rounding any quota-based approach, in which there is necessarily an element of arbitrariness. The basis of the allocation of quotas in the Fund has always been controversial. Even at Bretton Woods, it was the basis of painful tussles between the conference participants. The original formula, devised already in 1943 in the United States, was based on historic figures on national income, foreign reserves, and international trade (in terms both of value 17 From Bretton Woods to the Information Age 601 and of the variations of exports). In the quota review of 1959, additional consideration was given to the growth of trade; in 1964, a larger range of formulas was used to calculate a quota range. The 1975 quota review began to treat economies for the purpose of quota determination in groups (industrial, more developed primary producers, oil exporters, developing countries). As a result, the quotas calculated under variants of the "Bretton Woods formula" began to diverge from actual quotas. The largest quota holder has always been the United States, but in each successive general review, the U.S. share has been reduced. So too has that of the United Kingdom, which originally had by far the second largest quota. At the same time, since 1959 the quotas for Germany and Japan have been increased, as were the quotas of the large oil producers in the 1975 and 1978 reviews. The quota calculations obviously reflected shifts in the structure of the world economy, but it is not clear that the current quota distribution accurately represents the pattern of economic power. The Japanese and German quotas in particular are significantly lower than either their share in world trade or their share in international currency transactions (see Figure 17-1). As the issue of a changed or enlarged membership of the Security Council is debated, it is likely that increased representation in the IMF of the second and third largest economies of the world will also become a topic of concern. In the late 1970s, one of the reasons that these quotas were held down involved an explicit penalization for what were felt to be inadequate efforts in the surplus countries to bring about greater global growth.12 The same reasons might be given for an opposite response, an attempt to bind surplus countries and issuers of "key currencies" more tightly into the framework of responsibility for world economic decision making.

The Consensus

Intellectual developments have created a new potential for effectiveness of global institutions. One of the most startling developments of the 1980s and 1990s has been the emergence of a consensus about many economic issues. A great part of the difficulties faced by the makers of Bretton Woods was due to their inability at that time to build on such a consensus. At the outset of the postwar era, no consensus existed on how to deal with the problems of domestic economic management and on how the domestic economy would affect the international order. As a consequence, for most 602 INTERNATIONAL MONETARY COOPERATION

Table 17-1. Membership of International Organizations UN IMF GATT 1945 51 30 1946 55 40 1947 57 45 1948 58 47 18 1949 59 48 19 1950 60 49 28 1951 60 50 32 1952 60 54 32 1953 60 55 33 1954 60 56 33 1955 75 58 34 1956 79 60 34 1957 81 64 36 1958 82 68 36 1959 82 68 36 I960 99 68 37 1961 104 74 39 1962 110 81 43 1963 113 101 59 1964 115 101 63 1965 117 102 65 1966 121 104 69 1967 122 107 74 1968 123 III 75 1969 123 115 75 1970 126 117 77 1971 131 120 79 1972 131 125 80 1973 133 126 82 1974 136 126 82 1975 142 128 82 1976 145 129 82 1977 147 132 82 1978 149 138 83 1979 150 140 84 1980 152 141 84 1981 155 143 85 1982 155 146 87 1983 156 146 89 1984 157 148 89 1985 157 149 89 1986 157 151 91 1987 157 151 94 1988 157 151 95 1989 157 152 95 17 From Bretton Woods to the Information Age 603

Table 17-1 (concluded) UN IMF GATT 1990 158 156 99 1991 165 158 102 1992 179 175 104 1993 184 178 III

Sources: United Nations, International Monetary Fund, and General Agreement on Tariffs and Trade. Note: Figures have been adjusted to reflect shifts in membership owing to the amalgamation and separation of existing states.

of the postwar period, institutional arrangements were generally strained by the absence of a common agreement or outlook. They were torn by disputes about the advantages of protection, or disrupted by disagreements about the effects of fiscal deficits, or paralyzed by differences about exchange rate policy. Some countries, notably France, had committed themselves to a mixed economy with a sophisticated system of indicative planning and investment allocation. Some, like the United Kingdom, relied on finely tuned macroeconomic management. Others, in particular Japan, eschewed formal planning, but created an extensive system of informal coordination and administrative guidance. Germany, Italy, and the United States followed a much less inter- ventionist course. In many newly independent countries, Soviet-type central planning appeared as a promising way to rapid growth. The IMF's Articles of Agreement very deliberately protected national sovereignty and allowed states to formulate for themselves their own economic and political interests. At the outset of the postwar economic miracle, many observers deduced that classical or neoclassical economic theory was bankrupt when it came to dealing with the "real world" of politically motivated behavior. Jacob Viner, for instance, in 1951 wrote that: "The world has changed greatly, and is now a world of planned economies, of state trading, of substantially arbitrary and inflexible national price structures, and of managed instability in exchange rates. The classical theory is not directly relevant for such a world, and it may be that for such a world there is and can be no relevant general theory."13 The absence of a shared framework for analysis repeatedly proved frustrat- ing. For a time, the Bretton Woods system itself guaranteed a consensus about the international order and the desirability of an international rule, simply because it coincided with, and also helped to produce, spectacular economic growth and widespread prosperity. Gradually national concerns, 604 INTERNATIONAL MONETARY COOPERATION

Figure 17-1. IMF Quotas and the World Economy 17 From Bretton Woods to the Information Age 605

Figure 17-1 (concluded)

Share of World Exports

Share of National Currency in International Reserves

Sources: International Monetary Fund, and International Monetary Fund, Annual Report, 1992.

however, overwhelmed the commitment to the international order. In the 1970s, major international imbalances resulted from differences of view about the appropriate speed of adjustment to the consequences of the oil price shock. When some states adjusted earlier than others, the national differences were often fought out as rival interpretations of what the world economy needed. The quick adjusters (Germany and Japan) thought that the other states were causing international inflation; the latecomers (particularly Italy and the United Kingdom, but on some occasions also the United States) thought that the rapid adjusters were constraining world growth. The proposition that inflation or permissive monetary and fiscal policies could not represent an adequate way of sustaining high rates of growth was 606 INTERNATIONAL MONETARY COOPERATION accepted more quickly in the context of national discussions of macroeconomic policy; it was only at the end of the 1970s that it became a widely shared international viewpoint (and then became a common feature of G-7 summit and Interim Committee communiques). The new insight came in large part because of the economic instability created by the sharp expansion of world money during the 1970s. The IMF played an important part in the discussion of the new problems by consistently arguing that in the case of surplus countries, the need was less for greater fiscal or monetary stimulus than for more far-ranging "structural" measures, including trade opening, greater flexibility in labor markets, and (especially in the 1980s) a greater emphasis on marketization, competition, and privatization. As late as the first half of the 1980s, major differences in analysis between countries still remained. Leading U.S. policymakers refused to accept the elementary economic proposition that current account imbalances are identical to the national balance between savings and investment and that fiscal policy could as a result be responsible for a fall in saving that needed to be financed through foreign savings. The resulting inflows would explain the rise of the dollar on the foreign exchange markets. These debates were wider in their implication than merely informing Americans why their dollar was like a yo-yo on foreign exchange markets. The discussion raised the issue that had been central to the overall success of the world economy since Bretton Woods. The initiative for the opening of the world economy after 1945 came largely from one country, the United States, sometimes indirectly through its great influence over international institutions (which was especially strong, and beneficial, in the immediate postwar period), and sometimes directly through its trade policy. When, after the end of the dollar shortage, the United States became worried about the emergence of new surplus countries (first Germany, then Japan, and later the East Asian "tiger" economies), the character of its response inevitably affected the development of international institutions, and also of the world economy. The political argument swung backward and forward: demands for trade restriction and bilateral trade-restricting agreements appeared, the exchange rate policies of the surplus countries were questioned, and the United States wanted to use bilateral (and sometimes also institutional) pressure to force an appreciation of the surplus currencies. If the forces pushing in the other direction rely simply on an appeal to beneficence they can scarcely hope to succeed; many will ask why Americans should make sacrifices to support the world economy. Understanding how measures that lead to a reduction in global trade will hurt national welfare is a hard task: particularly because it runs 17 From Bretton Woods to the Information Age 607 counter to deeply held beliefs that governments should be activist, "do something," in the face of an economic difficulty. The temptations to break with the liberal concept of the global economy can only be overcome through an effort at understanding. When surpluses and deficits are understood less in terms of trade performance than as a reflection of different levels of saving and investment, there is a possibility of moving to a debate on how the behavioral patterns associated with saving and investment can be modified. This is a much broader social process than altering tariff schedules, negotiating deals with manufacturers of particular products, or even changing government fiscal policy. It is harder for governments to address such broad social issues directly. Over the past two decades, as a result of unsatisfactory economic experiences, opinions about appropriate and inappropriate diagnoses and policies have changed. Something approaching a diagnostic and policy consensus has emerged in both industrial and developing countries. Here are the com- mandments of the modern decalogue: (1) The most fundamental lesson is that long periods of the application of an inwardly oriented import substitution industrialization are harmful, even in countries such as Brazil or India with very large domestic markets. A separation from the world market produces an inappropriate price structure, which generates misleading signals for the allocation of resources, and as a result misinvestment. Governments are sometimes tempted and sometimes forced to manipulate the internal price structure to the advantage of influential groups. The result is an overall economic loss. The world market does not simply provide "competition" that might stimulate innovation and development; it also provides the only reliable and effective guide to the appropriate distribution of scarce resources (and a much better one than could be given by any government planner). In addition, the turning of the internal terms of trade to the disadvantage of agriculture contributes to the growth of rural poverty and to the generation of extreme disparities of income and wealth. The consequences are socially and politically destabilizing. (2) Links with the capital market affect the course of development. Indus- trialization or development that proceeds through a series of abrupt stops and starts as a result of changing conditions on international capital markets can carry harmful economic and political consequences. But capital movements are an essential part of the development process. There is a need to ensure that there are no substantial misallocations that might produce an abrupt reversal of confidence and a capital outflow. Again, the economically optimal outcome is best produced by letting a price system respond to market conditions. A code for capital liberalization might be a desirable successor to 608 INTERNATIONAL MONETARY COOPERATION the existing IMF code requiring a movement to current account convertibility (under Article VIII of the Articles).14 (3) There are times when it appears that the markets do not necessarily always "know best" (though governments acting on their own usually "know even less"). Major failures of coordination between countries can produce dramatic shifts in the pattern of capital movement. Steady and coordinated policies are required for capital allocation to be made in accordance with the appropriate judgment by the market of long-term development potential. States have to help the markets know best by pursuing consistent policies, through time as well as among countries. (4) The public sector is a major player in capital markets. It appears to offer potential investors the greatest security. But in an uncertain world, such security has its disadvantages. State borrowing may be less appropriate as a means of facilitating market judgments than borrowing and investing through corporations and individuals. There are then a much larger number of judgments being made about the economic future, and there is scope for some to be right (succeed) and for others to fail. States may feel the temptation to steer against the judgment of the markets and then, if such steering does not prove effective, to impose capital controls. These controls are rarely watertight and have not on the whole been effective instruments in stopping or reversing capital flight. (5) In addition, large fiscal imbalances can be very destabilizing and contribute to a mismatch of national savings and investment. Balance of payments problems are often a consequence of excessive monetary creation for the purpose of financing fiscal deficits. But fiscal problems are often highly intractable, and can only be dealt with effectively within a wider framework of general structural reform. (6) Overvalued exchange rates, which are often presented as an effective way of subsidizing basic or necessary imports, or as a means of fighting inflation, and are frequently supported by powerful and influential lobbies and interest groups, represent the equivalent of a tax on exports and harm long-term development prospects. (7) Flexible exchange rates are not undesirable, and indeed often represent an ideal way of accommodating external shocks. Pegging exchange rates (in the manner of the classical Bretton Woods system) often may enhance the credibility of monetary policy, but may make necessary adjustments harder because of a fear of upsetting confidence. On the other hand, highly volatile exchange rates, which are often the result of the pursuit of inconsistent policies, have a damaging effect on economic performance and are likely to intensify calls for the adoption of protectionism. 17 From Bretton Woods to the Information Age 609

(8) Monetary policy is best set by authorities that are as independent as possible of both the government (and associated political pressures) and the financial and banking sector (and associated day-to-day market pressures). It may be desirable to anchor the autonomy of the central bank through legal provisions. (9) The process of economic growth everywhere—including in developing countries—can be profoundly affected by an inappropriate policy mix in the major industrial economies. (10) There is no separate economic truth that applies to developed, or to developing, countries. The one area—and it is an extremely important one—where no substantial agreement has emerged yet is over international monetary and exchange rate policy. In particular, the debate conducted since the 1950s in an academic milieu and since the early 1970s in policy circles between fixed and flexible exchange rates remains unresolved. Some commentators believe that the accelerated pace of internationalization makes the transactions costs imposed by the multiplicity of currencies an increasingly significant deterrent to economic activity.15 Others continue to argue that exchange rates are "just another price" and that like other prices they should be allowed to fluctuate freely, and give necessary signals for participants in a market. Like the academics, policymakers and political and business elites are divided. Businessmen frequently complain about the uncertainties caused by exchange rate changes. Many policymakers have often staked their reputations on exchange rate stability: devaluations are viewed as a national humiliation; effective revaluations (in the surplus countries, which are highly export dependent) as a blow to the interests of exporters. On the other hand, if domestic costs and wages lead to an uncorrected movement of the real exchange rate, the result will also be the imposition of a distinct economic cost; and adjusting the exchange rate will often be the only politically feasible way of avoiding an underutilization of resources, idle plants, and an unemployed labor force. Adjustments in exchange rates provide a way of compensating for sudden changes in supply conditions, and perhaps also of compensating for mistakes or misjudgments in the policies of national governments. There is in fact general agreement that the avoidance of policy mismatches would lead to greater exchange rate stability (while the stabilization potential of exchange rate intervention is far lower); and also general agreement that this outcome would be desirable. In this way, greater exchange rate stability might be expected to be the outcome of other areas of policy consensus: it is more likely to be achieved in this way than as a consequence of the creation of 610 INTERNATIONAL MONETARY COOPERATION pre-set commitments by policymakers, which would only represent an open invitation to the testing and second-guessing through market sentiment. The increased extent of this guessing about the likely consequences of policy might in itself make the markets more disorderly and produce increasingly volatile exchange rate behavior not linked in any way to underlying "funda- mentals."16 Exchange rate stability could in short be seen as a desirable outcome of policy, but not as a very useful policy instrument. The aspects of the "new consensus" listed above are the product of a number of circumstances, which have culminated in the evolution of an intellectual conversion. It was not an outcome, however, of any great idealism about international cooperation. One of the enchanting peculiarities of the intellectually divided climate of Bretton Woods was its remarkable and persuasive vision of international harmony despite all the differences in national approaches. That degree of good will was needed, at that stage, precisely because of the absence of agreement. As the initial enthusiasm waned, as it was bound to do, other considerations became important. First of all, initially the lessons about openness were drawn by some development economists and then accepted more generally. An intellectual consensus, however, is not enough by itself to produce a policy effect. Academic economists, for instance, have consistently pointed out the economic losses inherent in trade protectionism, and for much of the last two centuries there has been something approaching a theoretical unanimity on this issue. That fact did not stop governments in the late nineteenth century, or more disastrously in the 1920s and 1930s, or again after the 1970s, from taking up protectionist measures. Rather, the world was battered into the new consensus by the repeated shocks experienced over the past two and a half decades. Indeed, perhaps paradoxically, it was those societies that were most exposed to the external shocks and that did not attempt to cushion themselves through accommodating monetary or fiscal steps that learned most quickly the lessons about the gains to be derived from openness. This was one of the features of the successes of the East Asian experience, where economies dependent almost entirely on imported energy found themselves very vulnerable in the 1970s. On the other hand, societies that attempted to isolate themselves often found that they were hit by a shock magnified as a consequence of delay. In addition, countries learned from the experiences of others. Often the experience of a particular national crisis was required to drive home the lessons already learned in other contexts: in Germany after 1945, in Spain in 1959, in Korea in 1960, in the United Kingdom in 1976, in France in 1983, in the United States in 1985, in Mexico in 1982 and 1985, in India 17 From Bretton Woods to the Information Age 611 in 1990 and 1991, or in the almost permanent crisis of Soviet-style economies in the 1980s. Some commentators have come to the conclusion that we need to experience a crisis in order to adjust our views. The modern economy, according to one dramatic analogy, is a giant plodding forward while always looking backward. It is only when the giant trips that he gets a glimpse of the future as he stumbles.17 Do we always need to face near catastrophe in order to adjust ideas and policies? An easier way of coming to terms with changes is to learn from the experience of others. We might try to equip the backward-looking giant with a system of lenses and mirrors, so that he knows what other giants are doing and can see a better way forward. Providing these reflective glasses is part of the surveillance function. One of the most important developments of the postwar era, and one which became more intensive during the course of the 1980s, has been the internationalization of the learning process. Ideas and knowledge have become an international commodity. The success of export-oriented industrialization in Asia demonstrated to Latin American economists and policymakers the drawbacks of import substitution strategies- East European states in 1989 learned from the successes of German adjustment programs in 1948, of the East Asian newly industrializing economies in dealing with the oil crises, and of the adjustment of Chile or Mexico after the debt crisis. The experience of the first reformers in Poland, the Czech Republic, and Hungary, in turn may serve as a pattern for later reform initiatives in formerly centrally planned economies. In many cases the transmission of this learning has been through high- level technocrats, who have often either been educated or worked abroad: such as the "Ford Foundation gang" who stabilized Indonesia in the late 1960s, or the Chilean "Chicago boys" from the exchange program of the Catholic University of Santiago or individuals in Central Europe in the 1970s and 1980s who went to North American universities (such as the Czech Vaclav Klaus).18 Working in international institutions, especially in the World Bank and the IMF, has been an additional way of consolidating and sustaining this "technocratic learning" and creating an international community of ideas between central bank and finance ministry officials. The converse of the experience of learning from other countries' experiments is that those states that insist most vigorously that their problems and positions are quite unique and incapable of comparison find themselves sooner or later in trouble. This is true of cases as diverse as the United States in the early 1980s, which believed that it had found in tax cuts a unique key to growth, or Brazil's insistence in the 1960s and 1970s on the virtue of import substitution as a strategy for countries with exceptionally large 612 INTERNATIONAL MONETARY COOPERATION domestic markets. In medical experience, the realization that one's problems are not singular is an important step on the road to health: the principle holds true for economies as well. One of the major contributions of surveillance to the development of the international economy has been an institutionalized mechanism for sharing and learning. The fact that the move to consensus was so often accompanied by shocks indicates that its continuation may depend not only on a general preaching of "sound economics" but also on specific help in micropolicy advice and the design of economic institutions (central banks, fiscal systems), as well as in the provision of resources in dealing with the aftermath of shock. Surveillance allows the dissemination of economic information including advice on successful strategies (as well as examples to be avoided of unsuccessful strategies). It also provides a mechanism through which states can influence the other actors in the system: through the transfer of information, and through discussions in the context of multilateral surveillance. In the past, a major channel for the supply of this information was through governments and through technocratic discussions among high-level officials: this will undoubtedly continue to be the case to a considerable extent in the future. The opening of many societies, and the increased importance of public discussion, also requires an increasing openness about information and about economic prescriptions; and this new openness too has been one of the features of the maturing of the surveillance process. In this way, with enhanced publicity, the IMF's "machinery for consultation and collaboration on international monetary problems" has evolved into a source of institutional and structural innovation and reinvigoration. As a result of the demand for surveillance, it has developed into a continual process. The periodic Article IV consultations are the basis of biannual World Economic Outlook exercises involving the gathering, synthesis, discussion, and reporting and transmission of information. These exercises are as a result continually in motion; in addition, there are regular and more frequent sessions of the IMF Executive Board devoted to developments in world markets. The rule of Bretton Woods has been replaced by knowledge; an information standard has succeeded a gold or dollar/sterling or dollar standard; and the influence of the institution at the heart of the international financial system depends largely on its ability to provide speedy, accurate, and persuasive economic analysis. This is the consequence of the emergence of capital markets, which make it impossible for the international system to police and control national policies, as it had done until the 1960s. It is this development that makes it increasingly inappropriate for the Fund to be 17 From Bretton Woods to the Information Age 613 used in the manner of the 1960s and 1970s, as a scapegoat or political lightning rod for weak governments frightened about the loss of political popularity. An important part of any economic reform process lies in ex- plaining why it is desirable and what the benefits will be; and this cannot simply be done by pointing at an outside institution. Already before the First World War, a British Prime Minister, A.J. Balfour had argued that "democracy is government by explanation." Governments need to explain more; and so also do international institutions. Such openness is a necessary consequence of their accountability. The redefinition of the Fund's role reflects a general shift in the global allocation of responsibilities between the public and the private spheres, with an increasing preponderance of the latter—the general transfer of the activity of choice to the collective outcome of millions of independent decisions. But the role of international institutions also will reflect the possibility of a collective dysfunction of the private sector and the need to deal with the consequences of potential breakdowns. The financial function of the Fund is as a supplier of liquidity to countries with inadequate access to the market because of market failures: sometimes a failure of the international market (such as in the generalized crisis of confidence brought by the international debt crisis of 1982, where the Fund had to step in to marshall the market); sometimes a weakness or inadequacy of domestic markets of the kind that characterizes many low-income countries. In the case of the latter, there is poor or no access to capital markets. In these circumstances, the Fund operates as a gateway to the international financial system. The contribution that is made by international institutions is both immediate and longer term. The surveillance exercise is intended (in these as well as in the other cases) to make markets function more effectively. In a perfectly functioning world, there would be no need of the Fund as a financial institution, because the reserves of confidence built up would be sufficient to make impossible the outbreak of panics or crises. It is scarcely necessary to point out that this world does not at present exist, and is not likely to be created in the immediate future. However, what already does exist is the intellectual framework (the "new consensus") with which it might be constructed; and the institutional framework, through the universal Bretton Woods institutions to supervise and advise policies in line with that consensus. Since the (relatively recent) rise of the consensus, calls for a new Bretton Woods, or for a new redesigning of the international monetary system, have become much more narrowly focused, and not simply on grounds of practical difficulties in the way of achieving a far-reaching revision. In 1989, Robert Solomon still stated that "a desire for reform is sitting in the breasts of 614 INTERNATIONAL MONETARY COOPERATION numerous economists and of the officials of some countries." By 1991, Otmar Issing was claiming that "a reform of the world monetary system a la Bretton Woods is neither possible nor necessary."19 Instead of massive reform, most suggestions require instead only a modest tinkering: the issue of new SDRs for developing countries or countries in transition, or more effective ways of implementing and realizing surveillance, or the delineation of responsibilities between the IMF and the World Bank, or the IMF and the BIS, or the IMF and the World Trade Organization (WTO). One of the reasons for the greater degree of realism about the international system is a greater measure of success in its operation. The increasingly widespread adoption of policies based on the consensus, especially in many developing countries since the mid-1980s, has led to results in the form of higher growth. (In only one year since 1985 did growth in developing countries fall below 3.5 percent, and developing countries as a group grew at high rates in 1992 and 1993 as they recovered from the world recession of the early 1990s.) The willingness to see expanded trade as an engine for growth resulted in the successful completion of the GATT Uruguay Round, with the extension of GATT principles to textiles and intellectual property, and in the agreement to establish the WTO. Largely as a result of the commitment of fast-growing developing economies to the central liberal vision of the Bretton Woods era, the dangers of a "new protectionism" on a global scale were lessened. At this stage, the reader may feel some hesitation. Obviously not all intellectual differences over economics are solved, nor are they likely to be. Perhaps the extent to which the new "mono-economics" has achieved a practical and intellectual ascendancy should not be overstated. The single world economy may not be necessarily intellectually or theoretically appeal- ing to every observer. Politicians, decision makers, businessmen, bankers do not always feel themselves to be part of a single universally applicable system. They are often eager to castigate the modern consensus as too short term, too chaotic, too liberal, and sometimes also as too Anglo-Saxon. They complain that excessive liberalization may make impossible a steady policy approach. They claim that large capital flows may undermine exchange rate stability, and thus may make it harder to formulate a long-term view and instead lead to "short-termism." They say that the costs of liberalization have been too high and have produced unacceptable shifts in income distribution, that globalization has led to the pauperization of unskilled workers in some industrial countries (notably the United States), and permanently high un- employment levels in those countries with more generous social security systems that stood in the way of wage adjustment. Or the critics demand 17 From Bretton Woods to the Information Age 615 that the state should play a larger role in development than is provided for in an approach which they castigate as "doctrinaire."20 Some observers occasionally present the East Asian success story as less a victory of liberal economics than an outcome of a tradition of economic planning. In particular in countries where past attempts at planning have failed, often dramatically, institutions or individuals with a historic commitment to the planning approach have tried to draw the lesson from rapidly growing newly industrializing economies that policy directives may work better than a market. Some Japanese observers have made the claim that the strength of the Japanese economy derives from a dirigiste approach that may make the Japanese experience particularly relevant to the problems of formerly centrally planned economies.21 In addition, the argument may not simply be about economic efficiency. It should also be concerned with a wider arena, and with more fundamental human problems. How can the demands of justice be reconciled with those of international economic stability and growth? What is the nature of the trade-off between justice and growth? No international order can survive for very long if it is widely perceived to be fundamentally unjust. Avoiding large disparities of wealth and income within national economies may be a prerequisite of social justice; but it is also clear from many examples from the world's most dynamic economies that a better distribution is often accompanied by faster growth. Within national economies, policy reforms aimed at preventing the pauperization of the unskilled may in the longer run best be directed to generally raising skill levels. The same principles will be true internationally: a world in which a large number of very poor countries continue to be very poor is also a world that unnecessarily limits opportunities. Combating poverty is as a consequence an essential task of the international community if it wishes to create a stable system. It should also be a part of the program design of international institutions such as the IMF (which has indeed paid more attention to these issues over the course of the 1980s). The current Managing Director of the IMF frequently refers to poverty reduction as an essential "fourth pillar" of any adjustment program. The crucial element in this strategy is the design of social safety nets, to prevent the immiserization of those displaced in the course of an economic restructuring. In the absence of such nets, it is often impossible to gather sufficient support for a radical market-based economic reform. An additional political dimension may mean that the creation of an adequate support system is blocked by vested interests attempting for their own ends to stymie the process of economic reform and liberalization. 616 INTERNATIONAL MONETARY COOPERATION

This struggle for justice needs to be conducted within the general framework of a system that offers incentives for alteration and improvement, rather than working through restraints and coercion. Attempting to deal with injustice in the past has too frequently involved the imposition by authorities of restraints that produced perverse and perhaps unintended consequences and that led to greater injustices- Penal taxation as a way of redistributing wealth and income, or intervention in price-setting in order to determine the allocation of resources between different sectors of the economy has too often produced a system of disincentives, which only the exceptionally ingenious or politically well-connected can work out how to avoid. Liberaliz- ing is frequently a part of any effective campaign against poverty. On the other hand, it is not enough by itself. A participation of richer countries in the exercise of creating incentives is unavoidable. This may involve specific transfers for particular projects; or a more radical and far-rang ing approach to the disincentives created by the presence of large external debt. The chances of dealing with poverty through investment in broadly based education, in health, and in infrastructure, all involve creating better opportunities for larger numbers of people. Such an approach is not only compatible with increased international openness; it is an indispensable part of such an opening. Finally, even a theoretical consensus may not have hard policy consequences. Many countries continue to say one thing while doing something completely different. Although there may be a new intellectual orthodoxy, practical interests continue to push politics in a different direction. For a variety of reasons, countries experience pressures—political, social, demo- graphic—that make it hard for their governments to return to fiscal balance. As a consequence, many governments throughout the world engage in large- scale dissaving. Many industrial countries have accumulated large and un- funded liabilities to a future in which their populations will age rapidly. In addition, whatever the theoretical attractions of an open economy, there are many interest and pressure groups that push in the opposite direction. Often the losers in a move to openness have an acute sense of their losses, while the potential beneficiaries cannot clearly perceive the extent of gains that lie in the future (and whose distribution is not clear). In these circumstances, international institutions that reinforce the lessons of the international consensus can play a valuable role in countering the harmful influence of specific pressure groups. The international community and international institutions are often defenders of the "general interest" in national debates where particular interests can organize and articulate themselves powerfully but to harmful effect. 17 From Bretton Woods to the Information Age 617

These and other partial reactions against internationalization and the emerging economic policy consensus may be inevitable. Policymakers may talk and talk about trade openness, the limitation of fiscal deficits, and decontrol of prices, but often in practice they find it difficult to act on these fine principles. They will invariably be pushed by a wide variety of domestic interests that often see strong particular gains from not being open. The result of such pressure may be beneficial to the powerful and articulate, but carry an overall cost for the society. One result of the consensus, however, is that it can be invoked as a justification for a policy that can deliver higher overall gains. As a result, few now any longer see a fundamental opposition between the requirements of the international system and the priorities of the national economy. Even more significantly, many have begun to see the international order, and international debate, discussion, and surveillance, as valuable allies against the ascendancy of particular political and economic interests.22 In this way it provides an essential component, not just of the international financial system, but of a mechanism for the creation of wider stability and of an international society that is more just.

The Overlap

The provision of global surveillance raises some questions about the links between international organizations and their spheres of action. There are several institutions dealing with some aspect of international economic, and particularly monetary, cooperation. The key issues in the future will be: (J) The management of global liquidity. One of the central developments of the postwar period has been the dramatic growth in private sector markets. Liquidity is no longer expected to be supplied by international institutions. The problem of regulation has not disappeared, however; the international character of finance requires a cross-national cooperation of regulatory authorities. In the past, both the IMF and (more directly) the BIS have been concerned with such regulation. How will it be managed in the future? If for the past twenty years, the most crucial bilateral institutional relationship of the IMF was with the World Bank across 19th Street in Washington, a major theme of the next twenty years will be contacts between Washington and Basle. As lending takes place more and more across national frontiers, involving different national regulatory authorities, and in the case of financial crises major international adjustment problems, an international lender of last resort has become more essential as part of the world monetary system. 618 INTERNATIONAL MONETARY COOPERATION

Figure 17-2. Small IMF

The debt crisis of 1982 demonstrated the way in which such a need brought the IMF and the private financial sector together. (2) Adjustment policies. The evolution of a longer time horizon, and the degree of access of industrial and even many middle-income countries to private markets, has brought the World Bank and the IMF closer together in dealing with the problems of poorer countries. Their functions remain separate, in that the IMF is primarily a monetary and not a development institution; but effective institutionalized cooperation between the two is needed if there is not to be a widespread rejection of the Bretton Woods twins on the part of their members, clients, and owners. (3) Confidence. There is a need for a stable policy framework among the members of the international financial system. In the recent past, this has been the task of the G-7. Reasons have been set out above for thinking that this might better be tackled by a genuinely universal institution, and within the framework of the IMF. To this classical trinity of considerations in an international financial system should be added a fourth: 17 From Bretton Woods to the Information Age 619

Figure 17-3. Large IMF

(4) Trade policy. One of the raisons d'etre of the IMF was to prevent monetary policy being used as an instrument of trade wars; and the first Fund Article of Agreement refers to a duty "to facilitate the expansion and balanced growth of international trade." In the process of IMF surveillance of exchange rate policy, the liberalization of trade and the priorities set in the new World Trade Organization will be a major consideration. It has repeatedly been demonstrated that trade liberalization is one of the most important compo- nents of effective and sustained economic reform and adjustment. The agreement establishing the WTO requires it to cooperate with the IMF and the World Bank to achieve "greater coherence in global economic policy making," but as yet the contents of such coherence have not been made clear. The world faces an institutional choice between an order in which these aspects of surveillance are fragmented and treated in separation, with a 620 INTERNATIONAL MONETARY COOPERATION smaller IMF (Figure 17-2) or, preferably, one in which the elements of surveillance are more effectively coordinated, with a stronger IMF (Figure 17-3). The case for greater coordination between international institutions rests on the substantial extent of the linkages that exist between different global economic problems. Issues such as interest rate levels, macroeconomic orientation, debt problems, and capital flows cannot be treated adequately in isolation from each other.

A long run historical view can help in providing a useful antidote to two common errors in policy formulation. The world and its leaders tend to lurch dangerously between two opposite poles: either an exaggerated belief in the intractability of problems or an overconfidence as to their solubility. At some times almost all the experts, politicians, and media agreed that the horizon was clear, with no problems or dangers in sight. At other points they also held a consensus view, that the difficulties were too overwhelming, the sacrifices required too great to be bearable, and the world's available statesmanship too puny to deal with the task in hand. These overextreme answers to the question of whether and how the problems of the international system might be solved have been formulated regularly, with regard to a whole range of issues. Hubris and despair chase each other in quick succession, as contemporary opinion swings between optimism and an incapacitating pessimism. Whether the question at stake was recovery from the interwar Great Depression, the reconstruction of Europe and East Asia after the war, the monetary inflation of the late 1960s, the oil price shocks of the 1970s, the debt crisis of the 1980s, the structural problems of sub-Saharan Africa, or the transition from centrally planned economies, all provoked extremes, sometimes of confidence, and sometimes of self-doubt. The task of international institutions, and of the surveillance process, is to ensure that both are avoided and that problems are analyzed, understood, and then tackled. Notes

Archives mentioned in the notes below have been abbreviated as follows: BoE Bank of England Archive, London DB Deutsche Bundesbank Historical Archive, Frankfurt GRF Gerald R. Ford Library, Ann Arbor, Michigan IMF BW International Monetary Fund Bretton Woods Collection IMF CF International Monetary Fund Central Files IMF RD International Monetary Fund Records Depository ME Ministry of the Economy Archives, Paris NA United States National Archives, Washington, D.Q PU Princeton University Manuscript Collection, Princeton, New Jersey UB University of Basle, Manuscript Collection WES William Simon Papers, Lafayette College, Lafayette, Pennsylvania

For the purpose of this history, the author was given full access to the Fund's archives. Under its Articles of Agreement, the Fund has no obligation to open its archives; in practice, however, the Fund provides access to certain archival materials to researchers in connection with research projects that are deemed of interest to the Fund or where the Fund has judged that the research would promote better knowledge and understanding of the organization. In most such cases, access is granted to materials that are over 30 years old, subject to specific exceptions.

Chapter 1. Interdependence in the World Economic System

1. Bank for International Settlements report, cited in James Blitz, "London Consoli- dates Lead in Foreign Currency Trading," Financial Times, April 1, 1993, p. 23. "Investors Retreating from Foreign Markets," New York Times, December 16, 1987, pp. Al, D4. 2. Vladimir Zhirinovsky, cited in Chrystia Freeland, "Blood, Sweat and Tears—For Others," Financial Times, December 9, 1993, p. 2. 3. W. Arthur Lewis, Growth and Fluctuations 1870-1913 (London: Allen and Unwin, 1978), p. 69. Alternative figures are given in Folke Hilgerdt, Industrialization and Foreign Trade (Geneva: League of Nations, 1945). The postwar figures are calculated from the United Nations Statistical Yearbook indices. 4. W.S. Woytinsky and E.S. Woytinsky, World Commerce and Governments: Trends and Outlook (New York: Twentieth Century Fund, 1955), p. 43. 5. See Margaret Kelly and others, Issues and Developments in International Trade Policy, World Economic and Financial Surveys (Washington: International Monetary Fund,

621 622 INTERNATIONAL MONETARY COOPERATION

1992), p. 9. International Monetary Fund, World Economic Outlook, May 1994: A Survey by the Staff of the International Monetary Fund, World Economic and Financial Surveys (Washington: International Monetary Fund, 1994), pp. 109, 134. 6. There is a valuable survey of the literature, as well as a new contribution, in Manuel Guitian, Rules and Discretion in International Economic Policy, IMF Occasional Paper No. 97 (Washington: International Monetary Fund, 1992). See also Joseph Gold, The Rule of Law in the International Monetary Fund, IMF Pamphlet Series, No. 32 (Washington: International Monetary Fund, 1980); Ronald I. McKinnon, "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, Vol. 31 (March 1993), pp. 1-44. 7. Jacob Viner, "Power Versus Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth Centuries," World Politics, Vol. 1 (October 1948), pp. 1-29. Robert Gilpin and Jean Gilpin, The Political Economy of International Relations (Princeton, New Jersey: Princeton University Press, 1987), pp. 32, 180-82. 8. Lewis, Growth, p. 181. Imre Ferenczi and Walter F. Willcox, International Migrations, Vol. 1 (New York: National Bureau of Economic Research, 1929). 9. Lewis, Growth, pp. 185-86. 10. The effect of world capital mobility is to weaken the relationship between domestic investment in any country and the national saving rate. An analysis at the end of the 1970s concluded that international differences in domestic saving rates still corresponded very closely with domestic investment behavior. Martin Feldstein and Charles Horioka, "Domestic Saving and International Capital Flows," Economic Journal, Vol. 90 (June 1980), pp. 314-29. See also Tamim Bayoumi, "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?" Staff Papers, International Mone- tary Fund, Vol. 37 (June 1990), pp. 360-87. For evidence that national investment and saving are no longer so closely correlated, see Maurice Obstfeld, "International Capital Mobility in the 1990s," in Understanding Interdependence: The Macroeconomics of the Open Economy, ed. by Peter B. Kenen (Princeton, New Jersey: Princeton University Press, 1995), pp. 201-61. 11. Andre Piganiol, Histoire de Rome (Paris: Presses Universitaires de France, 1939; 5th ed., 1962, pp. 256, 606). Mortimer Wheeler, "Roman Contact with India, Pakistan and Afghanistan," in Aspects of Archaeology in Britain and Beyond, ed. by William Francis Grimes (London: H.W. Edwards, 1951), pp. 354, 359-67. 12. John Whitney Hall, ed., The Cambridge History of Japan, Vol. 4, Early Modern Japan (Cambridge, England: Cambridge University Press, 1991), p. 61. 13. Larry Neal, The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (Cambridge, England: Cambridge University Press, 1990). 14. John Maynard Keynes, The Economic Consequences of the Peace (New York: Har- court, Brace and Howe, 1920), pp. 11-12. 15. Sir Albert Feavearyear, The Pound Sterling: A History of English Money (Oxford: Oxford University Press, 2d ed., 1963), pp. 212-23. 16. See Milton Friedman, "Bimetallism Revisited," in Friedman, Money Mischief: Epi- sodes in Monetary History (New York: Harcourt Brace Jovanovich, 1992), pp. 126-56. 17. Theodore H. Von Laue, Sergei Witte and the Industrialization of Russia (New York: Columbia University Press, 1963), p. 27. (The quotation is sometimes also reproduced, less dramatically, as: "We must export even if we have to make our belts tighter.") See Notes to Chapter 1 623 also Clive Trebilcock, The Industrialization of the Continental Powers 1780-1914 (London: Methuen, 1981), p. 227. 18. Youssef Cassis, Les Banquiers de la City a I'epoque Edouardienne (Geneva: Librairie Droz, 1984), pp. 346-47. 19. John Maynard Keynes, A Treatise on Money, Vol. 2 (New York: Harcourt, Brace and Co., 1930), p. 306. 20. Barry Eichengreen has emphasized the cooperative rather than hegemonic character of the prewar gold standard. Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (New York: Oxford University Press, 1992), pp. 30-32. 21. The most explicit statement of this belief is Norman Angell, The Great Illusion: A Study of the Relation of Military Power in Nations to Their Economic and Social Advantage (New York: G.P. Putnam's Sons, 1911). 22. Marcello De Cecco, The International Gold Standard: Money and Empire (New York: St. Martin's Press, 1984), p. 71. 23. R.S. Sayers, The Bank of England 1891-1944, Vol. 1 (Cambridge, England: Cam- bridge University Press, 1976), p. 59. 24. See Gerald D. Feldman, The Great Disorder: Politics, Economics, and Society in the German Inflation 1914-1924 (New York: Oxford University Press, 1993). The Helfferich quotation is on p. 40. 25. See Eichengreen, Golden Fetters, pp. 159 ff. 26. Quoted in William Adams Brown, Jr., The International Gold Standard Reinterpreted 1914-1934 (New York: National Bureau of Economic Research, 1940), p. 749. In a more recent analysis, this criticism appears most explicitly in Melchior Palyi, The Twilight of Gold 1914-1936: Myths and Realities (Chicago: Henry Regnery, 1972), which restates many of the arguments Palyi made in the 1920s. 27. See Peter B. Kenen, "The Coordination of Macroeconomic Policies," in International Policy Coordination and Exchange Rate Fluctuations, ed. by William H. Branson, Jacob A. Frenkel, and Morris Goldstein (Chicago: University of Chicago Press, 1990), pp. 63—102. 28. Stephen V.O. Clarke, The Reconstruction of the International Monetary System: The Attempts of 1922 and 1933, Princeton Studies in International Finance No. 33 (Princeton, New Jersey: Princeton University Press, 1973), pp. 14-15. 29. BoE Gl/421, Strong to Norman, May 1, 1927. 30. Clarke, Reconstruction, p. 15. 31. Gustav Cassel, The Downfall of the Gold Standard (Oxford: Clarendon Press, 1936). Sir Henry Strakosch, The Crisis, Supplement to The Economist, January 9, 1932. 32. H. Clark Johnson, "The Gold Deflation, France, and the Coming of the Depression 1919-1932" (doctoral dissertation, Yale University, 1994), p. 474. 33. See Ivan T. Berend and Gyorgi Ranki, Economic Development in East-Central Europe in the 19th and 20th Centuries (New York: Columbia University Press, 1974), pp. 247-49. 34. The most recent study is by Aurel Schubert, The CrediuAnstolt Crisis of 1931 (Cambridge, England: Cambridge University Press, 1991). 35. See Charles P. Kindleberger, The World in Depression 1929-1939 (London: Allen Lane, 1973), pp. 296-97. 36. See Barry Eichengreen and Jeffrey Sachs, "Exchange Rates and Economic Recovery in the 1930s," Journal of Economic History, Vol. 45 (1985), pp. 925-46. Ben Bernanke and Harold James, "The Gold Standard, Deflation, and Financial Crisis in the Great 624 INTERNATIONAL MONETARY COOPERATION

Depression: An International Comparison," in Financial Markets and Financial Crises, ed. by R. Glenn Hubbard (Chicago: University of Chicago Press, 1991), pp. 33-68. 37. Roger Auboin, The Bank for International Settlements, 1930-1955, Essays in Interna- tional Finance No. 22 (Princeton, New Jersey: Princeton University Press, 1955), p. 3. 38. Harold James, The Reichsbank and Public Finance in Germany 1924-1933: A Study of the Politics of Economics During the Great Depression (Frankfurt: Fritz Knapp, 1985), p. 92. 39. Eckhard Wandel, Hans Schdffer: Steuermann in wirtschaftlichen und politischen Krisen (Stuttgart: Deutsche Verlags-Anstalt, 1974), p. 217. 40. The Public Papers and Addresses of Franklin D. Roosevelt, Vol. 2, The Year of Crisis 1933 (New York: Random House, 1938), pp. 264-65. 41. Susan Strange, Sterling and British Policy: A Political Study of an International Currency in Decline (London: Oxford University Press, 1971), pp. 54-55. Stephen V.O. Clarke, Exchange-Rate Stabilization in the MidA930s: Negotiating the Tripartite Agreement, Princeton Studies in International Finance No. 41 (Princeton, New Jersey: Princeton University Press, 1977). But see Ian M. Drummond, London, Washington, and the Management of the Franc, 1936-1939, Princeton Studies in International Finance No. 45 (Princeton, New Jersey: Princeton University Press, 1979), p. 5. 42. Drummond, London, Washington, pp. 45-46. 43. W. Arthur Lewis, Economic Survey 1919-1939 (London: Allen & Unwin, 1949; reprint 1953). 44. See Joseph M. Jones, Tariff Retaliation: Repercussions of the Hawley-Smoot Bill (Philadelphia: University of Pennsylvania Press, 1934). 45. Howard S. Ellis, Exchange Control in Central Europe (Cambridge, Massachusetts: Harvard University Press, 1941). Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1945). Alan S. Milward, "The Reichsmark Bloc and the International Economy," in Der "Fuhrerstaat": Mythos und Realitdt: Studien zur Struktur und Politik des Dritten Reiches, ed. by Gerhard Hirschfeld and Lothar Kettenacker (Stuttgart: Klett-Cotta, 1981), pp. 377-413. Larry Neal, "The Economics and Finance of Bilateral Clearing Agreements: Germany, 1934-8," Economic History Review, Vol. 32 (August 1979), pp. 391-404- David E. Kaiser, Economic Diplomacy and the Origins of the Second World War: Germany, Britain, France, and Eastern Europe 1930-1939 (Princeton, New Jersey: Princeton University Press, 1980).

Chapter 2. "Prosperity Has No Fixed Limits"

1. See Patricia Clavin, "The World Economic Conference 1933: The Failure of British Internationalism," Journal of European Economic History, Vol. 20, No. 3 (Winter 1991), pp. 489-527. 2. League of Nations archive, Geneva (United Nations), R2672, Second Meeting of Monetary Subcommittee, November 1, 1932; R2671, Third Meeting of Preparatory Committee, November 7, 1932. 3. Cited in Robert Skidelsky, John Maynard Keynes: The Economist as Saviour (London: Macmillan, 1992), p. 482. Notes to Chapter 2 625

4. Cordell Hull papers, Yale University, microfilm reel 11, Dodd to Hull, May 19, 1934. 5- Walther Funk, The Economic Future of Europe (Berlin: Terramare Office, 1940), p. 9. 6. Funk, Economic Future, p. 11. 7. Armand Van Dormael, Bretton Woods: Birth of a Monetary System (New York: Holmes and Meier, 1978), pp. 6-7. Joseph Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays, Vol. 2 (Washington: International Mone- tary Fund, 1984), p. 19. Donald Moggridge, Maynard Keynes: An Economist's Biography (London: Routledge, 1992), p. 654. 8. Foreign Relations of the United States, Diplomatic Papers 1941, Vol. 3 (Washington: U.S. Government Printing Office, 1959), p. 15. 9. Foreign Relations, Vol. 1 (1958), p. 368. 10. Moggridge, Maynard Keynes, p. 672. 11. PU, Harry Dexter White papers, 8/24e, Phillipps to White, August 28, 1942. 12. J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, Vol. 3 (Washington: International Monetary Fund, 1969), p. 6. 13. Samuel Brittan, A Restatement of Economic Liberalism (London: Macmillan, 1988), p. 87. 14. Horsefield, International Monetary Fund, Vol. 3, pp. 13, 15, 14, 18. 15. Ragnar Nurkse, International Currency Experience: Lessons from the Inter-War Period (Geneva: League of Nations, 1944), pp. 220, 222, 188. 16. Horsefield, International Monetary Fund, Vol. 3, p. 31. See also Moggridge, Maynard Keynes, p. 673. 17. BoE OV38/49, Sir Hubert Henderson note of August 1, 1944- 18. Horsefield, International Monetary Fund, Vol. 3, p. 64. 19. Richard N. Gardner, Sterling-Dollar Diplomacy: The Origins and the Prospects of Our International Economic Order (New York: McGraw-Hill, 1969), p. 76. 20. Robert W. Oliver, Early Plans for a World Bank, Princeton Studies in International Finance No. 29 (Princeton, New Jersey: Princeton University Press, 1971), pp. 26-27. 21. April 1947 U.K. White Paper: National Income and Expenditure of the United Kingdom J938-1946. 22. Horsefield, International Monetary Fund, Vol. 3, p. 55. 23. Horsefield, International Monetary Fund, Vol. 3, pp. 62, 68. 24. Horsefield, International Monetary Fund, Vol. 3, p. 57. 25. Roy F. Harrod, The Life of John Maynard Keynes (Harmondsworth, England: Pen- guin, 1972), p. 675. 26. John Maynard Keynes, The Collected Writings of John Maynard Keynes, Vol. 25, Activities 1940-1944: Shaping the Post-War World, The Clearing Union, ed. by Donald Moggridge (London: Macmillan, 1980), p. 404. See also Sidney Dell, On Being Grandmoth- erly: The Evolution of IMF Conditionality, Essays in International Finance No. 144 (Prince- ton, New Jersey: Princeton University Press, 1981), p. 1. 27. IMF BW, Fund Plan, interdepartmental meetings, October 9, 1942. 28. John Morton Blum, From the Morgenthau Diaries, Vol. 3, Years of War 1941-1945 (Boston: Houghton Mifflin, 1967), p. 240. 626 INTERNATIONAL MONETARY COOPERATION

29. IMF BW, Fund Plan, interdepartmental meetings, May 30, 1942. 30. The plan is reproduced in Horsefield, International Monetary Fund, Vol. 3, pp. 97-102. 31. "Post-War Financing for World Proposed by French Economists," New York Times, May 9, 1943. 32. French Archives Nationales, NM1433, April 1943, Problemes monetaires d'apres- guerre: Monnaie Internationale et controle des changes; August 1, 1944, Rapport sur l'organisation de Peconomie de paix. 33. ME 44.833, Rapport fait par M. de Largentaye, Inspecteur des Finances, sur la conference de Bretton Woods, August 1945. 34. A.F.W. Plumptre, Three Decades of Decision: Canada and the World Monetary System 1944-75 (Toronto: McClelland and Stewart, 1977), p. 40. The text of the plan is reproduced in Horsefield, International Monetary Fund, Vol. 3, pp. 103-18. 35. J.L. Granatstein, The Ottawa Men: The Civil Service Mandarins, 1935-1957 (To- ronto: Oxford University Press, 1982), pp. 141-49. Louis Rasminsky, "Canadian Views," in Bretton Woods Revisited, ed. by A.L.K. Acheson, J.F. Chant, and M.F.J. Prachowny (Toronto: University of Toronto Press, 1972), pp. 34-37. 36. Erin E. Jacobsson, A Life for Sound Money: Per Jacobsson, His Biography (Oxford: Clarendon Press, 1979), pp. 178-82. 37. A recent commentator speaks of the existence of a "primitive epistemic community" of expert economic opinion-makers: G. John Ikenberry, "A World Economy Restored: Expert Consensus and the Anglo-American Postwar Settlement," International Organiza- tion, Vol. 46, No. 1 (Winter 1992), p. 293. 38. Horsefield, International Monetary Fund, Vol. 3, p. 21. 39. Harrod, Keynes, pp. 644-45. 40. Moggridge, Maynard Keynes, p. 691. 41. Blum, Morgenthau, p. 239. 42. IMF BW, meetings of June 26, 1944. 43. Proceedings and Documents of the United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1-22, 1944, Vol. 1 (Washington: U.S. Government Printing Office, 1948), pp. 23-24, Alternatives C and G. 44. IMF BW, meeting of February 3, 1944. 45. Harrod, Keynes, p. 685. 46. Raymond F. Mikesell, The Bretton Woods Debates: A Memoir, Essays in International Finance No. 192 (Princeton, New Jersey: Princeton University Press, 1994), pp. 21-22, 35, 38. 47. Blum, Morgenthau, p. 261. 48. Mikesell, Bretton Woods, p. 37. 49. Charles Kindleberger, comments to author, April 25, 1994. 50. Proceedings and Documents, Vol. 1, p. 1095. 51. Van Dormael, Bretton Woods, pp. 200, 202. 52. PU, White papers 10/241, memorandum attached to Opie letter to White, April 20, 1944. 53. John Maynard Keynes, The Collected Writings of John Maynard Keynes, Vol. 26, Activities 1941-1946: Shaping the Post-War World, Bretton Woods and Reparations, ed. by Donald Moggridge (London: Macmillan, 1980), pp. 48, 52-53. Notes to Chapter 3 627

54. Keynes, Collected Writings, Vol 26, p. 188, February 15,1945 Notes for the Chancel- lor on Bretton Woods. 55. See Clair Wilcox, A Charter for World Trade (New York: Macmillan, 1949). 56. Harrod, Keynes, p. 688. 57. Moggridge, Maynard Keynes, p. 740. 58. Van Dormael, Bretton Woods, p. 200. 59. Blum, Morgenthau, p. 248. 60. IMF BW, Fund Plan, interdepartmental meetings, April 1, 1944. 61. Moggridge, Maynard Keynes, p. 740. Harrod, Keynes, pp. 644, 743, 664. 62. NA RG56/33, NAC Doc. 674, April 23, 1948 brief: Policy with Regard to Use of Resources of the Fund. 63. John H. Williams, Postwar Monetary Plans, and Other Essays (New York: A.A. Knopf, 1947), p. lxxxii. 64. Keynes, Collected Writings, Vol. 26, pp. 114-17. 65. See L.S. Pressnell, External Economic Policy Since the War, Vol. 1, The Post-War Financial Settlement (London: H.M. Stationery Office, 1986), pp. 170-79. 66. IMF BW, Alice Bourneuf memorandum, Federal Reserve Bank of New York (FRBNY), June 28, 1944. 67. NA RG56/33, NAC Doc. 674, April 23, 1948 brief: Policy with Regard to Use of Resources of the Fund. 68. See "Address by the Honorable Henry Morgenthau, Jr., at the Inaugural Plenary Session July 1, 1944," in United Nations Monetary and Financial Conference, Bretton Woods, New Hampshire, July I to July 22, 1944: Final Act and Related Documents (Washington: U.S. Government Printing Office, 1944). 69. See Frank Costigliola, "The Other Side of Isolationism: The Establishment of the First World Bank 1929-1930," Journal of American History, Vol. 59 (December 1972), pp. 602-20.

Chapter 3. The Compromise Unravels

1. Armand Van Dormael, Bretton Woods: Birth of a Monetary System (New York: Holmes and Meier, 1978), pp. 200-203, 211. 2. L.S. Pressnell, External Economic Policy Since the War, Vol. 1, The Post-War Financial Settlement (London: H.M. Stationery Office, 1986), pp. 141-42. 3. William Y. Elliott, The Political Economy of American Foreign Policy: Its Concepts, Strategy, and Limits (New York: Henry Holt, 1955), p. 209. 4. NA RG56/33, NAC Doc. 581, Managing Director to Executive Board, Decem- ber 24, 1947. 5. See Eric Roll, "Behind Bretton Woods—The Climate Then and Today," in Interna- tional Capital Movements, Debt and Monetary System, ed. by Wolfram Engels, Armin Gutowski, and Henry C. Wallich (Mainz: v. Hase & Koehler, 1984), p. 311: "It should be frankly acknowledged that Bretton Woods was essentially an Anglo-American creation, accepted by the allies and others, because these two countries alone had at the 628 INTERNATIONAL MONETARY COOPERATION time the political, material and moral resources to produce and realize a plan of this magnitude." 6. PU, White papers 7/22d, meeting in the office of Chancellor of the Exchequer, August 11, 1944. 7. Donald Moggridge, Maynard Keynes: An Economist's Biography (London: Routledge, 1992), p. 764. Keynes, "Our Overseas Financial Prospects," in Collected Writings of ]ohn Maynard Keynes, Vol. 24, Activities 1944-1946: The Transition to Peace, ed. by Donald Moggridge (London: Macmillan, 1979), p. 400. 8. John Morton Blum, From the Morgenthau Diaries, Vol. 3, Years of War 1941-1945 (Boston: Houghton Mifflin, 1967), p. 253. 9. Edwin W. Kemmerer, "The Road to Bretton Woods," Financial Chronicle, April 19, 1945. 10. American Bankers Association, Association of Reserve City Bankers, and Bankers Association for Foreign Trade, in "Bankers' Associations Report on Bretton Woods Plans," Financial Chronicle, February 8, 1945. 11. Randall Bennett Woods, A Changing of the Guard: Anglo-American Relations, 1941-1946 (Chapel Hill: University of North Carolina Press, 1990), pp. 230-32. 12. Williams had used the term "key countries" as early as the debates of 1932-33 and the concept may even date back to 1922. See Charles P. Kindleberger, The World in Depression 1929-1939 (Berkeley: University of California Press, 1986), p. 203 (footnote 16). 13. John H. Williams, Postwar Monetary Plans, and Other Essays (New York: A.A. Knopf, 1947), p. 257. 14. Williams, Postwar, p. xc. 15. IMF BW, Fund Plan, interdepartmental meetings, August 11, 1943. 16. Williams, Postwar, p. ci. 17. Harry G. Johnson, Economic Policies Toward Developing Countries (Washington: Brookings Institution, 1967), pp. 16-17. 18. Pressnell, External Economic Policy, pp. 262-341. 19. PU, White papers ll/26c, script of radio talk with Senator Kilgore, April 10, 1946. 20. Moggridge, Maynard Keynes, p. 797. 21. Paul Einzig, "Bretton Woods and the Gold Standard," Financial News, Octo- ber 19, 1944. 22. Moggridge, Maynard Keynes, p. 817. 23. Roy F. Harrod, The Life of John Maynard Keynes (Harmondsworth, England: Pen- guin, 1972), p. 721. 24. PU, White papers 7/23d, November 30, 1945 note of H.D. White. 25. PU, White papers 7/23a, March 7, 1944, "Proposed U.S. Loan to the U.S.S.R." See, in general, Christopher Andrew and Oleg Gordievsky, KGB: The Inside Story of Its Foreign Operations from Lenin to Gorbachev (New York: HarperCollins, 1990), pp. 280-82. David Rees, Harry Dexter White: A Study in Paradox (New York: Coward, McCann & Geoghegan, 1973). 26. PU, White papers 7/23c, January 10, 1945 memorandum for the President. 27. A recent authoritative book on the KGB describes White as a "leading Soviet agent": Andrew and Gordievsky, KGB, p. 280. According to Henry Morgenthau's son, Notes to Chapter 3 629

"my father was never able to resolve the question of White's Communist affiliations in his own mind": Henry Morgenthau III, Mostly Morgenthaus: A Family History (New York: Ticknor & Fields, 1991), p. 427. Mikesell comments that White "believed in free markets and capitalism," but was "oblivious to the ideologies of his associates and was quite willing to deal with Communist officials to achieve his objectives": Raymond F. Mikesell, The Bretton Woods Debates: A Memoir, Essays in International Finance No. 192 (Princeton, New Jersey: Princeton University Press, 1994), pp. 56-57. 28. Russian Foreign Ministry, Collection of Molotov, December 27,1945 memorandum (V. Gerashchenko, Finance Ministry). 29. Alan Bullock, Hitler and Stalin: Parallel Lives (New York: A.A. Knopf, 1992), pp. 912-13, 917. 30. Russian Foreign Ministry: Collection of Molotov, December 29,1945 memorandum (signature illegible). 31. George F. Kennan, Memoirs 1925-1950 (Boston: Little Brown, 1967), p. 293. 32. Kennan, Memoirs, pp. 553, 547: telegraphic message from Moscow, February 22, 1946. 33. J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, Vol. 1 (Washington: International Monetary Fund, 1969), p. 123. Harrod, Keynes, p. 632.

34. John Maynard Keynes, The Collected Writings of John Maynard Keynesy Vol. 26, Activities 1941-1946: Shaping the Post-War World, Bretton Woods and Reparations, ed. by Donald Moggridge (London: Macmillan, 1980), p. 225. 35. Keynes, Collected Writings, Vol. 26, pp. 228, 229, March 27, 1946 Note for Chan- cellor. 36. ME B44-833, August 1945, Rapport fait par M. de Largentaye, Inspecteur des Finances, sur la conference de Bretton Woods, pp. 100-103, 116-17. This document is also reproduced in part in Comite pour l'histoire economique de la France, Etudes et documents, Vol. 5 (Paris, 1993), pp. 559-84. 37. Gerard Bossuat, La France, Vaide americaine et la construction europeenne 1944-1954 (Paris: Comite pour l'histoire economique et financiere, 1992), pp. 71—72. 38. Charles P. Kindieberger, A Financial History of Western Europe (New York: Oxford University Press, 1993), p. 419. 39. World Bank, The International Bank for Reconstruction and Development, 1946-1953 (Baltimore: Johns Hopkins Press, 1954), pp. 68-71. 40. Alan S. Milward, The Reconstruction of Western Europe, 1945-51 (London: Methuen, 1984), p. 45. 41. Milward, Reconstruction, pp. 48 ff. 42. Organization for European Economic Cooperation, Statistical Bulletin of Foreign Trade (various issues). William Adams Brown, Jr. and Redvers Opie, American Foreign Assistance (Washington: Brookings Institution, 1953), p. 247. 43. Michael J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952 (Cambridge, England: Cambridge University Press, 1987), p. 410. 44. See Peter J. Katzenstein, Small States in World Markets: Industrial Policy in Europe (Ithaca, New York: Cornell University Press, 1985), pp. 39-79. 630 INTERNATIONAL MONETARY COOPERATION

45. John Gimbel, The Origins of the Marshall Plan (Stanford, California: Stanford University Press, 1976), p. 78. 46. Hogan, Marshall Plan, p. 38. 47. Under-Secretary of State Robert A. Lovett, quoted in Hogan, Marshall Plan, p. 127. 48. Robert Trifftn, Europe and the Money Muddle: From Bilateralism to Near-Convertibil- ity, 1947-1956 (New Haven, Connecticut: Yale University Press, 1957), p. 163. 49. Agreement for the Establishment of a European Payments Union of the 19th September 1950, Preamble. See, in general, Jacob J. Kaplan and Giinther Schleiminger, The European Payments Union: Financial Diplomacy in the 1950s (Oxford: Clarendon Press, 1989). 50. See William Diebold, Jr., Trade and Payments in Western Europe: A Study in Economic Cooperation, 1947-51 (New York: Harper, 1952), pp. 37-50. Richard N. Cooper, The Economics of Interdependence: Economic Policy in the Atlantic Community (New York: McGraw-Hill, 1968), pp. 209-10. 51. IMF CF, Managing Director files, Andrew Overby to Gutt, August 28, 1950, adding the additional comment: "It looks as if, unless we watch the matter closely and get sufficient support to stop it, EPU will continue to build its empire." 52. John Fforde, The Bank of England and Public Policy 1941-1958 (Cambridge, England: Cambridge University Press, 1992), p. 209. 53. Horsefield, International Monetary Fund, Vol. 1, p. 258. 54. IMF CF, C/Poland/000, J. Winiewicz (Ambassador of Poland) to Managing Director of IMF, March 13, 1950. 55. IMF CF, EBM/53/81, November 4, 1953. 56. Joseph Gold, Membership and Nonmembership in the International Monetary Fund: A Study in International Law and Organization (Washington: International Monetary Fund, 1974), pp. 342-72. 57. NA RG56/33, NAC Doc. 581, Overby to Board, January 5, 1948. 58. NA RG56/33, NAC Doc. 674, NAC memorandum: Policy with Regard to Use of Resources of the Fund, April 23, 1948. 59. NA RG56/33, November 9, 1950, staff memorandum 468 (May 2, 1948). 60. BoE OV38/27, J.W. Beyen, November 20, 1950, Will the International Monetary Fund Come to Life at Last? 61. ME B44.834, report of de Largentaye, January 11, 1949. IMF RD, AN70/41, Box 2, SN164, letter of Sir George Bolton to Keith Horsefield, February 21, 1967. 62. NA RG56/33, NAC Doc. 473, Southard to Secretary of NAC, November 9, 1950. 63. NA RG56/33, NAC Doc. 1208, Southard to Secretary of NAC, October 25, 1951. 64. Horsefield, International Monetary Fund, Vol. 1, p. 555. 65. Sidney S. Alexander, "Effects of a Devaluation on a Trade Balance," Staff Papers, International Monetary Fund, Vol. 2 (April 1952), pp. 263-78. 66. Robert A. Mundell, "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," Staff Papers, International Monetary Fund, Vol. 9 (March 1962), pp. 70-79. J. Marcus Fleming, "Domestic Financial Policies Under Fixed and Under Floating Exchange Rates," Staff Papers, International Monetary Fund, Vol. 9 (November 1962), pp. 369-80. 67. BoE OV37/27, Gutt to Bolton, November 14, 1950. Notes to Chapter 4 631

68. Frank Southard, remarks in The Caravan (IMF Retirees Association newsletter), January 1989, p. 8. 69. IMF RD, AN7O/41, Box 2, SN164, O.L. Altman interview with Camille Gutt, November 5, 1963. Ivar Rooth, Riksbankschef 1929-1948: En autobiografi, Intaladfor och utskriven av Gosta Rooth (Oslo: private printing, Gosta Rooth, 1988), pp. 110-11.

Chapter 4. Richesse Oblige: The Establishment of Convertibility

1. F.E. Aschinger, "The Future of Convertibility," Swiss Review of World Affairs, Vol. 4, No. 8 (November 1954), pp. 1-3. 2. See the brief historical account in Charles P. Kindleberger, The Dollar Shortage (Cambridge, Massachusetts: MIT Press, 1950), pp. 3-5. Hal B. Lary and others, The United States in the World Economy: The International Transactions of the United States During the Interwar Period (Washington: U.S. Government Printing Office, 1943). Charles P. Kindleberger, "International Monetary Stabilization," in Postwar Economic Problems, ed. by S.E. Harris (New York: McGraw-Hill, 1943), p. 375. Alvin H. Hansen, Americas Role in the World Economy (New York: W.W. Norton, 1945), p. 135. Keynes in the House of Lords, December 18, 1945, reproduced in The Collected Writings of John Maynard Keynes, Vol. 24, Activities 1944-1946: The Transition to Peace, ed. by Donald Moggridge (London: Macmillan, 1979), p. 622. 3. Roy F. Harrod, Are these Hardships Necessary? (London: Rupert Hart-Davis, 1947), pp. 42-43. 4. ME B44832, Gouvernement provisoire de la Republique francaise, 1945, Resume d'une conversation avec J.M. Keynes, J. Robinson, N. Kaldor. 5. Harrod, Hardships, pp. 134, 137, 138. G. Haberler, "Review of Harrod, Are these Hardships Necessary?" Review of Economics and Statistics, Vol. 30 (May 1948), pp. 141-43. Thomas Balogh, The Dollar Crisis: Causes and Cure, A Report to the Fabian Society (Oxford: Basil Blackwell, 1949), p. vii. 6. Kindleberger, Dollar Shortage, p. 245. 7. Erik Hoffmeyer, Dollar Shortage and the Structure ofU.S. Foreign Trade (Copenhagen: Ejnar Munksgaard, 1958), p. 212. 8. IMF CF, C/UK/110, July 1954 memorandum: The Convertibility of Sterling. 9. Susan Strange, Sterling and British Policy: A Political Study of an International Currency in Decline (London: Oxford University Press, 1971). Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the International Monetary System (Chicago: University of Chicago Press, 1982), pp. 179-81. 10. Michael J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952 (Cambridge, England: Cambridge University Press, 1987), p. 276. 11. L.S. Pressnell, External Economic Policy Since the War, Vol. 1, The Post-War Financial Settlement (London: H.M. Stationery Office, 1986), pp. 216-20. 12. BoE OV38/49, February 28, 1956 note. 632 INTERNATIONAL MONETARY COOPERATION

13. International Monetary Fund, Summary Proceedings, Second Annual Meeting of the Board of Governors (Washington: International Monetary Fund, 1947), p. 10. 14. International Monetary Fund, Annual Report, 1949 (Washington: International Monetary Fund, 1949), p. 2. 15. See Gutt's address, "The Practical Problem of Exchange Rates," to Littauer School of Public Administration, Harvard University, February 13, 1948. 16. Alan S. Milward, The Reconstruction of Western Europe 1945-5 J (London: Methuen, 1984), p. 45. Bank for International Settlements, Nineteenth Annual Report (Basle: Bank for International Settlements, June 1949), p. 133. Estimates for capital flight from France alone in 1948 ranged from $150 million to $500 million. 17. Michael L. Hoffman, "Europe Feels Drop in Capital Flight," New York Times, July 25, 1953, p. 5. 18. International Monetary Fund, Annual Report, 1948, p. 23. 19. BoE OV38/19, April 26, 1948, Bolton to Siepmann. 20. BoE OV38/19, June 15, 1948, Oliver Franks (Washington) to Foreign Office. 21. BoE OV 38/19, April 4, 1948, British Embassy (Washington) to Foreign Office. 22. Alec Cairncross and Barry Eichengreen, Sterling in Decline: The Devaluations of 1931, 1949 and 1967 (Oxford: Basil Blackwell, 1983), pp. 117-18. Hogan, Marshall Plan, p. 210. 23. U.S. Congress, Senate, Hearings Before the Committee on Foreign Relations, on S.833, A Bill to Amend the Economic Cooperation Act of 1948, February 16, 1949, 81st Congress, 1st Session (Washington: U.S. Government Printing Office, 1949), pp. 388-89. 24. ME 44833, April 7, 1949, de Largentaye letter to Guindey. 25. ME B25415, May 19, 1949, Southard: Policy with Regard to Fund Drawings, and May 23, 1949, letter of de Margerie to Guindey. BoE OV35/21, May 23, 1949, Bolton note. 26. ME Z10060, July 6-7, 1949, Resume des conversations entre experts Francais et Americains. 27. BoE Gl/108, June 28, 1949, Report of Managing Director to Board. 28. See Etienne Deshormes, "Camille Gutt—Premier Directeur General du Fonds Monetaire International 1946-1951," Revue de la Banque, Vol. 50, Supplement historique (July 1986), pp. 38-41. 29. ME B25415, August 19, 1949, de Margerie to Guindey. 30. BoE OV35/21, April 1, 1949, A.P.G.S. [Grafftey-Smith] note. 31. Cairncross and Eichengreen, Sterling, pp. 122, 133. 32. See Barry Eichengreen, "A Payments Mechanism for the Former Soviet Union: Is the EPU a Relevant Precedent?" Economic Policy, Vol. 17 (October 193), pp. 309-45. 33. BoE OV38/27, November 14, 1950, Gutt to Bolton. 34. See Hogan, Marshall Plan, p. 297 for U.S. views on the EPU. IMF CF, S1812.2, June 16, 1950, memorandum: The outcome of the EPU negotiations, and SI811.1, July 2, 1951, Irving S. Friedman: Notes on discussions with Mr. Tenenbaum (ECA). 35. See, in general, Milward, Reconstruction. Jacob J. Kaplan and Giinther Schleiminger, The European Payments Union: Financial Diplomacy in the 1950s (Oxford: Clarendon Press, 1989), p. 102. Notes to Chapter 4 633

36. Erin E. Jacobsson, A Life for Sound Money: Per Jacobsson, His Biography (Oxford: Clarendon Press, 1979), pp. 242-43. 37. Jacobsson, Life, p. 239. 38. See Cbristoph Bucbheim, Die Wiedereingliederung Westdeutschlands in die Welt- wirtschaft 1945-1958 (Munich: Oldenbourg, 1990). 39. Kaplan and Schleiminger, European Payments Union, pp. 158-59. 40. International Monetary Fund, Annual Report, 1952, p. 1. 41. J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, Vol. 1 (Washington: International Monetary Fund, 1969), p. 314. 42. See Joseph Gold, The Stand-By Arrangements of the International Monetary Fund: A Commentary on Their Formal, Legal, and Financial Aspects (Washington: International Monetary Fund, 1970). 43. IMF CF, C/Belgium/1760, March 17, 1952, Visit of Maurice Frere; June 17, 1952, Maurice Frere to Managing Director of IMF. 44. DB B330/1058, May 26, 1954, O.R. Donner to Finance Ministry. 45. Horsefield, International Monetary Fund, Vol. 1, pp. 273-74. A.F.W. Plumptre, Three Decades of Decision: Canada and the World Monetary System, 1944-75 (Toronto: McClelland and Stewart, 1977), pp. 147-49. Paul Wonnacott, The Floating Canadian Dollar: Exchange Flexibility and Monetary Independence (Washington: American Enterprise Institute, 1972). 46. Alan S. Milward (with George Brennan and Federico Romero), The European Rescue of the Nation-State (London: Routledge, 1992), p. 347. 47. Kaplan and Schleiminger, European Payments Union, p. 164- For the struggle about ROBOT within British policymaking circles, see Alec Cairncross and Nita Watts, The Economic Section 1939-1961: A Study in Economic Advising (London: Routledge, 1989), pp. 302-22. 48. John Fforde, The Bank of England and Public Policy 1941-1958 (Cambridge, England: Cambridge University Press, 1992), p. 590. 49. Milward, European Rescue, p. 355. See also Frederick C. Dirks, "Monetary Policy in the U.S., Canada, and the U.K.," in The Revival of Monetary Policy: Texts and Charts of an Informal Discussion at the Eighth Annual Meeting of the Board of Governors, International Monetary Fund, September 11, 1953 (Washington: International Monetary Fund, 1953), pp. 6-7. 50. IMF CF, C/UK/110, July 22, 1952, Rooth to Cobbold. 51. Susan Strange, Sterling, pp. 66-67. See also Judd Polk, Sterling: Its Meaning in World Finance (New York: Harper, 1956). 52. BoE OV38/27, November 20, 1950, Beyen note. 53. March 23, 1953. See also Richard Maudling, "Freeing Trade, Currency Is Two- Way Business," Journal of Commerce, November 18, 1953. 54. Kaplan and Schleiminger, European Payments Union, p. 207. 55. IMF CF, C/UK/110, July 1954 memorandum: The Convertibility of Sterling; September 13, 1954, Sterling Convertibility. 56. "London Talks on Convertibility: Preparations for July Conference," Financial Times, June 9, 1954, p. 1. 634 INTERNATIONAL MONETARY COOPERATION

57. BoE OV38/48, October 30, 1955, Sir Roger Makins cable. 58. "Is Sterling Convertibility Still Far Off?" The Statist, July 19, 1952, p. 80. 59. Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1953). 60. Otmar Emminger, "Internationaler Wahrungsfonds und Wechselkurspolitik," in Zeitschrift fur das Gesamte Kreditwesen, Vol. 10 (September 1957), pp. 732-36. 61. Lombard, "Should Fund Give Money Back?" Financial Times, April 24, 1956, p. 3. "Le Fonds monetaire international se reformera-t-il pour survivre?" Le Monde, Octo- ber 7, 1956. 62. IMF RD, AN70/41, Box 2, SN164, November 14-16, 1963, O.L. Altman interview with Ivar Rooth. 63. See Diane B. Kunz, The Economic Diplomacy of the Suez Crisis (Chapel Hill: University of North Carolina Press, 1991), pp. 133-38. 64. Frank Southard, remarks in The Caravan (IMF Retirees Association newsletter), January 1989, p. 9. IMF CF, C/UK/1760, U.K. Request for a Drawing, December 5, 1956. 65. UB, Jacobsson diary, 1959 I, January 24, 1959. 66. ME B44834, December 19, 1947, Report of de Largentaye. 67. Jean-Pierre Patat and Michel Lutfalla, Histoire Monetaire de la France au XXe siecle (Paris: Economica, 1986), pp. 128-29. Gerard Bossuat, La France, I'aide americaine et la construction europeenne 1944-1954 (Paris: Comite pour l'histoire economique et financiere, 1992), pp. 272-73. 68. Claude Pierre-Brossolette, "Les relations monetaires exterieures de 1958 a 1964," in De Gaulle en son siecle, Vol. 3, Moderniser la France (Paris: Plon, 1992), p. 144. 69. Patat and Lutfalla, Histoire Monetaire, p. 157. 70. IMF CF, C/France/420, December 23, 1957, Pfeifer note for Jacobsson. 71. Cited in Milward, European Rescue, p. 215. 72. Jaques Rueff, Combats pour Vordre financier: Memoires et documents pour servir a I'Histoire du dernier demUsiecle (Paris: Plon, 1972), p. 154- 73. UB, Jacobsson diary, 1958. 74. See Rueff, Combats, particularly pp. 287-448. 75. ME Z10061, April 18, 1959, Alphand cable (on views of the U.S. and Canadian Executive Directors, Southard and Rasminsky). 76. DB B330/1058, letter of Hallstein to Erhard, July 23, 1959; memorandum of EEC Commission General Economic and Financial Directorate, July 27, 1959. 77. DB B330/148, 38th Central Bank Council Meeting, January 8-9, 1959. 78. Committee on the Working of the Monetary System (Radcliffe Committee), Report, Cmnd. 827 (London: H.M. Stationery Office, August 1959), p. 252. 79. Manuel Varela, "El Plan de Estabilizacion como yo lo recuerdo," Informacion Comercial Espanola, Nos. 676-77, December 1989-January 1990, p. 45. 80. Varela, "Plan," p. 48. 81. IMF CF, C/Spain/810, June 23, 1959, television interview. 82. IMF CF, C/Spain/1760, Mariano Navarro Rubio and Alberto UUastres, "Memoran- dum from the Spanish Government to the IMF and OEEC," June 30, 1959. 83. Alberto UUastres, "Plan de Estabilizacion: Discurso del Ministro de Comercio a las Cortes" (July 28, 1959), Informacion Comercial Espanola, Boletin Semanal, No. 643, July 30, 1959. Notes to Chapter 4 635

84. Varela, "Plan," p. 52. 85. Josep Fontana and Jordi Nadal, "Spain 1914-1970," in The Fontana Economic History of Europe: Contemporary Economies, Vol. 2, ed. by Carlo M. Cipolla (Glasgow: Collins, 1976), p. 522. 86. Luis Angel Rojo, "Panorama economico," Espana Perspectiva, 1969, reprinted in Trece economistas espanoles ante la economia espanola, ed. by Jacinto Ros Hombravella (Barcelona: Oikos-tau, 1975) p. 178. See also Nancy Bermeo and Jose Garcia-Duran, "Spain: Dual Transition Implemented by Two Parties," in Voting for Reform: Democracy, Political Liberalization, and Economic Adjustment, ed. by Stephan Haggard and Steven B. Webb (New York: Oxford University Press, 1994), pp. 89-127. 87. UB, Jacobsson diary 1959 I, February 6, 1959. 88. Deutsche Bundesbank, Deutsches Geld- und Bankwesen in Zahlen 1876-1975 (Frank- furt: Fritz Knapp, 1976), p. 339. 89. Herbert Giersch, Karl-Heinz Paque, Holger Schmieding, The Fading Miracle: Four Decades of Market Economy in Germany (Cambridge, England: Cambridge University Press, 1992), p. 110. 90. DB B330/1087, June 14, 1957, Emminger to Vocke. John F Kennedy Library, Harvard University, Personal Office, Box 117a, U.S. Aide Memoire on the Balance of Payments Situation, Chancellor Adenauer's Visit, April 12-13, 1961. 91. Christoph Buchheim "Das Londoner Schuldenabkommen," in Westdeutschland 1945-1955: Unterwerfung, Kontrolle, Integration, ed. by Ludolf Herbst (Munich: Oldenbourg, 1986) p. 228. 92. International Monetary Fund, International Financial Statistics, 1964/65 Supplement, pp. 80-81. 93. DB Emminger papers: 1956 DM Aufwertung; November 10, 1956, Deutsche Uberschussposition und Wechselkurspolitik. 94. DB B330/133, Protocol of 3rd Central Bank Council meeting, August 21-22,1957. 95. Emminger, "Internationaler Wahrungsfonds und Wechselkurspolitik." UB, Jacobs- son diary 120, May 1957. 96. DB Emminger papers, September 1, 1960, Emminger to Guth. 97. DB Emminger papers, August 20, 1960, Memorandum: Juristische und technische Uberlegungen zur Wechselkurspolitik. 98. See the influential article by Germany's leading banker, Hermann J. Abs, "Der Wechselkurs: Kein Feld fiir Experimente," Frankfurter Allgemeine Zeitung, June 11, 1960. 99. See the report in DB B330/170, 81st Central Bank Council meeting, October 27, 1960. 100. UB, Jacobsson diary 168,1960II, November 1960 lunch with William McChesney Martin. 101. The text oi the aide-memoire is reproduced in "U.S. Aide-Memoire on Balance of Payments," U.S. Department of State, Bulletin, Vol. 44 (March 1961), p. 370. The aide-memoire was first made public in the New York Times, "Text of U.S. Note on Sharing Aid and Defense Costs," February 21, 1961. 102. DB B330/175 II, 89th meeting of Central Bank Council. Also DB Emminger papers, September 1, 1960, Emminger to Guth. 103. Otmar Emminger, D-Mark, Dollar, Wdhrungskrisen: Erinnerungen eines ehemaligen Bundesbankprdsidenten (Stuttgart: Deutsche Velags-Anstalt, 1986), p. 123. 636 INTERNATIONAL MONETARY COOPERATION

104. DB B330/175 I, February 25, 1961, meeting of Central Bank Council. 105. DB B33O/175 II, 89th meeting of Central Bank Council. 106. Emminger, D-Mark, p. 128. 107. Lombard, "Revaluation That 'Went Wrong,' " Financial Times, September 5, 1961, p. 3. 108. "Talks with U.S. Federal Reserve in Basle," The Times (London), June 13, 1961. 109. IMF CF, C/Japan/820, June 18, 1957, Per Jacobsson note (Conversation with Mr. Watanabe); November 30, 1962, Irving S. Friedman memorandum: 1962 Article XIV Consultations with Japan. 110. IMF CF, C/Japan/820, November 30, 1962, Irving S. Friedman memorandum: 1962 Article XIV Consultations with Japan. See also Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy 1925-1975 (Stanford, California: Stanford University Press, 1982), pp. 259-63. 111. September 16, 1958 IMF paper on "International Reserves and Liquidity," reproduced in Horsefield, International Monetary Fund, Vol. 3, pp. 349-420. 112. See the discussion in Executive Board Meeting, March 21-22, 1961, IMF CF, EBM/61/12. 113. Robert Trifftn, "The European Monetary System: Tombstone or Cornerstone?" in Federal Reserve Bank of Boston, The International Monetary System: Forty Years After Bretton Woods, Conference Series, No. 28 (Boston: Federal Reserve Bank of Boston, 1984), p. 151. 114. International Monetary Fund, Annual Report, 1952, p. 6.

Chapter 5. Development and Bretton Woods

1. Joseph Gold, "Uniformity as a Legal Principle of the Fund," in Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays, Vol. 1 (Washing- ton: International Monetary Fund, 1979), p. 478. M. Narasimham, Bretton Woods—Forty Years On (Bombay: Forum of Free Enterprise, 1984), p. 9. 2. See Anne O. Krueger, Political Economy of Policy Reform in Developing Countries (Cambridge, Massachusetts: MIT Press, 1993), p. 39. 3. M.A.G. van Meerhaeghe, International Economic Institutions (London: Longman, 1971), pp. 113-14. 4. Patrick Low, Trading Free: The GATT and U.S. Trade Policy (New York: Twentieth Century Fund, 1993), p. 26. 5. For a critique see Gottfried Haberler, "Terms of Trade and Economic Development," in Economic Development for Latin America: Proceedings of a Conference Held by the Interna- tional Economic Association, ed. by Howard S. Ellis (New York: St. Martin's Press, 1961), pp. 275-97. 6. See W. Arthur Lewis, Economic Survey 1919-1939 (London: Allen & Unwin, 1949; reprint 1953), pp. 59-60. 7. Hans W. Singer, "Economic Progress in Under-Developed Countries," Social Re- search, Vol. 16 (March 1949), pp. 1-11. United Nations Economic Commission for Latin Notes to Chapter 5 637

America, The Economic Development of Latin America and Its Principal Problems (Lake Success, 1950). Raul Prebisch, "Commercial Policy in Underdeveloped Countries," Ameri- can Economic Review, Papers and Proceedings, Vol. 49 (May 1959), pp. 251-73. 8. There is a classic statement in Celso Furtado, The Economic Growth of Brazil: A Survey from Colonial to Modern Times, translated by Ricardo W. de Aguiar and Eric Charles Drysdale (Berkeley: University of California Press, 1963), pp. 252-53. 9. Henry J. Bruton, Inflation in a Growing Economy, Series in Monetary and Interna- tional Economics, No. 2 (Bombay: Bombay University Press, 1961), p. 57. There were also powerful criticisms of this view of inflation in some developing countries. See Alexandre Kafka, "The Theoretical Interpretation of Latin American Development," pp. 1-25, and Roberto de Oliveira Campos, "Inflation and Balanced Growth," pp. 82-106, in Ellis, ed., Economic Development. 10. Rudiger Dornbusch and Sebastian Edwards, "The Macroeconomics oi Populism," in The Macroeconomics of Populism in Latin America, ed. by Rudiger Dornbusch and Sebastian Edwards (Chicago: University of Chicago Press, 1991), p. 9. 11. Opening of discussion of the UN Economic and Social Council on the World Economic Situation, Press Release ECOSOC/1168 (Geneva: European Office of the United Nations, July 6, 1959). 12. International Monetary Fund, Annual Report, 1959 (Washington: International Monetary Fund, 1959), pp. 70, 73. 13. International Monetary Fund, Annual Report, 1962, p. 42. 14. U Tun Wai, "The Relation Between Inflation and Economic Development: A Statistical Inductive Study," Staff Papers, International Monetary Fund, Vol. 7 (October 1959), pp. 302-17. Graeme S. Dorrance, "The Effect of Inflation on Economic Develop- ment," Staff Papers, International Monetary Fund, Vol. 10 (March 1963), pp. 1-47. 15. Dorrance, "Effect of Inflation," p. 30. 16. Richard N. Cooper, The Economics of Interdependence: Economic Policy in the Atlantic Community (New York: McGraw Hill, 1968), p. 90. 17. Alexandre Kafka, "Theoretical Interpretation," p. 21, in Ellis, ed., Economic Devel- opment. 18. Carlos F. Diaz-Alejandro, Exchange-Rate Devaluation in a Semi-Industrialized Coun- try: The Experience of Argentina 1955-1961 (Cambridge, Massachusetts: MIT Press, 1965), p. 146. International Monetary Fund, Summary Proceedings of the Sixteenth Annual Meeting of the Board of Governors, 1961 (Washington: International Monetary Fund, 1961), p. 45. 19. H.B. Chenery and A.M. Strout, "Foreign Assistance and Economic Development," American Economic Review, Vol. 56 (September 1966), pp. 679-733, lays out the model of the "two gaps." 20. See Robert Tignor, The Struggle for the Private Sector: Egypt, Nigeria, and Kenya in the Age of Decolonization (forthcoming). 21. Celso Furtado, "Post-National Capitalism," in Latin American Research Unit, Studies, Vol. 2, No. 2 (February 1978), p. 6. 22. W.W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cam- bridge, England: Cambridge University Press, 1971), p. 166. 23. Edward S. Mason and Robert E. Asher, The World Bank Since Bretton Woods (Washington: Brookings Institution, 1973), p. 397. 638 INTERNATIONAL MONETARY COOPERATION

24- African Development Bank, Report by the Board of Directors of the African Develop- ment Bank, 1964-65 (Abidjan: African Development Bank, 1966), p. 1. African Develop- ment Bank, Report, 1966, p. 21. 25. Po-Wen Huang, Jr., The Asian Development Bank: Diplomacy and Development in Asia (New York: Vantage Press, 1975). 26. Mason and Asher, World Bank, p. 578. See also (intr.) J. Branger, Les Banques de di.veloppem.ent dans le monde (Paris: Dunod, 1964). 27. See Jacques J. Polak, The World Bank and the International Monetary Fund: A Changing Relationship (Washington: Brookings Institution, 1994), p. 4: "In earlier years, the clear differences in focus between the two institutions made collaboration a low- priority issue." 28. UB, Jacobsson France diary, 1958. 29. Melchior Palyi, Managed Money at the Crossroads: The European Experience (Notre Dame, Indiana: University of Notre Dame Press, 1958), p. 91. 30. IMF CF, C/India/1760, G.L.L. de Moubray, Note for Record, January 17, 1957. 31. International Monetary Fund, Summary Proceedings, 1961, pp. 19-20. Also see International Monetary Fund, Annual Report, 1962, pp. 41-47. 32. IMF CF, C/Argentina/1760, December 22, 1959, Jacobsson to Samuel Schweizer, Swiss Bank Corporation; January 4, 1960, Jacobsson to Guillaume Guindey; January 4, 1960, Schweizer to Jacobsson; January 12, 1960, Salle to Jacobsson. 33. JJ. Polak and W.H. White, "The Effect of Income Expansion on the Quantity of Money," Staff Papers, International Monetary Fund, Vol. 4 (August 1955), pp. 398-433. 34. IMF CF, C/Mexico/810, mission Polak and staff 1955, Financial Policy and Eco- nomic Development in Mexico, June 24, 1955. 35. IMF CF, C/Mexico/810, Jorge del Canto memorandum for J.J. Polak, October 2, 1956. 36. J.J. Polak, "Monetary Analysis of Income Formation and Payments Problems," Staff Papers, International Monetary Fund, Vol. 6 (November 1957), pp. 1-50. 37. Victor Argy, "Monetary Variables and the Balance o{ Payments," Staff Papers, International Monetary Fund, Vol. 16 (July 1969), pp. 267-88. J.J. Polak and Victor Argy, "Credit Policy and the Balance of Payments," Staff Papers, International Monetary Fund, Vol. 18 (March 1971), pp. 1-21. 38. Demetrios Papageorgiou, Armeane M. Choksi, and Michael Michaely, Liberalizing Foreign Trade in Developing Countries: The Lessons of Experience (Washington: World Bank, 1990). 39. "To Balance or Not," Economist, April 22, 1961, p. 329. 40. UN General Assembly, 17th Session, Second Committee Agenda Items 12 and 35, Report of the Economic and Social Council; Economic Development of Under- Developed Countries; Inflation and Economic Development; Bolivia, Brazil, and Tunisia, draft resolution, November 2, 1962. General Assembly, 17th Session, Resolution 1830, December 18, 1962, Inflation and Economic Development. 41. IMF CF, C/Colombia/420, Anne Romanis, Stabilization and Development: The Colombian Case: Memorandum for Internal Discussion by Fund Staff, Janu- ary 7, 1963. Notes to Chapter 6 639

42. IMF CF, B640, IBRD, The Evaluation of Economic Performance in Developing Countries, June 1, 1966. 43. Mason and Asher, World Bank, pp. 285-86. 44. Mason and Asher, World Bank, p. 551. 45. See Margaret Garritsen de Vries, The International Monetary Fund 1966-1971: The System Under Stress, Vol. 1 (Washington: International Monetary Fund, 1976), pp. 269 ff. 46. The best account is still van Meerhaeghe, International Economic Institutions, pp. 153-60. 47. See William R. Cline, International Monetary Reform and the Developing Countries (Washington: Brookings Institution, 1976). 48. de Vries, International Monetary Fund 1966-1971, Vol. 2, p. 254.

Chapter 6* The Heyday of Bretton Woods and the Reserve Debate

1. Stephen A. Marglin and Juliet B. Schor, eds., The Golden Age of Capitalism: Reinter- preting the Postwar Experience (Oxford: Clarendon Press, 1990). Michael D. Bordo, "The Bretton Woods System: A Historical Overview," in Michael D. Bordo and Barry Eichen- green, eds., A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform (Chicago: University of Chicago Press, 1993), p. 27. Ronald I. McKinnon, "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, Vol. 31 (March 1993), p. 39. 2. Simon Kuznets, "Two Centuries of Economic Growth: Reflections on U.S. Experi- ence," American Economic Review, Papers and Proceedings, Vol. 67 (February 1977), p. 14. 3. J.M. Finger, "Trade Liberalization: A Public Choice Perspective," in Challenges to a Liberal International Economic Order, ed. by Ryan C. Amacher, Gottfried Haberler, and Thomas D. Willett (Washington: American Enterprise Institute, 1979), p. 431. 4. Joseph Gold, "Developments in the International Monetary System, the Interna- tional Monetary Fund, and International Monetary Law Since 1971," in Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays, Vol. 2 (Washing- ton: International Monetary Fund, 1984), pp. 22-24. 5. For this triad, see Fritz Machlup, Plans for Reform of the International Monetary System, Special Papers in International Economics, No. 3 (Princeton, New Jersey: Prince- ton University Press, revised 1964). International Monetary Fund, Annual Report, 1964 (Washington: International Monetary Fund, 1964). Also see the survey in Bordo, "Bretton Woods System." 6. Robert Solomon, The International Monetary System, 1945-1976: An Insider's View (New York: Harper & Row, 1977), p. 30. 7. Walter S. Salant and others, The United States Balance of Payments in 1968 (Washing- ton: Brookings Institution, 1963). 640 INTERNATIONAL MONETARY COOPERATION

8. Robert Triffin, Europe and the Money Muddle: From Bilateralism to Near-Convertibility, 1947-1956 (New Haven, Connecticut: Yale University Press, 1957), p. 137. 9. Triffin, Europe, p. 295. 10. Triffin, Europe, p. 296. 11. Robert Triffin, "The Return to Convertibility: 1926-1931 and 1958-? or Convert- ibility and the Morning After," Quarterly Review, Banca Nazionale del Lavoro, No. 48 (March 1959), pp. 3-57; "Tomorrow's Convertibility: Aims and Means of International Monetary Policy," Quarterly Review, Banca Nazionale del Lavoro, No. 49 (June 1959), pp. 131-200; and Gold and the Dollar Crisis: The Future of Convertibility (New Haven, Connecticut: Yale University Press, 1960). 12. See the criticism of Triffin's analysis by Paul de Grauwe, International Money: Post- War Trends and Theories (Oxford: Clarendon Press, 1989), pp. 23-26. 13. UB, Jacobsson diary, February 6, 1959. 14. International Economic Policy Association, The United States Balance of Payments: From Crisis to Controversy (Washington: International Economic Policy Association, 1972), p. 13. 15. Economic Report of the President, Transmitted to the Congress January 1976 (Washing- ton: U.S. Government Printing Office, 1976), pp. 274-75. 16. See Richard N. Cooper, The Economics of Interdependence: Economic Policy in the Atlantic Community (New York: McGraw Hill, 1968), p. 133. 17. The classic analysis is Emile Despres, Charles P. Kindleberger, and Walter S. Salant, "The Dollar and World Liquidity: A Minority View," Economist, February 11, 1966, pp. 526-29. 18. Margaret Garritsen de Vries, Balance of Payments Adjustment, 1945 to 1986: The IMF Experience (Washington: International Monetary Fund, 1987), p. 78. 19. UB, Jacobsson diary, 1962 I, March 21, 1962. 20. Arthur M. Schlesinger, Jr., A Thousand Days: John F. Kennedy in the White House (New York: Fawcett Premier, 1965), p. 601. 21. Solomon, International Monetary System, p. 42. 22. DB, 127th Central Bank Council meeting. 23. J. Keith Horsefield, The International Monetary Fund 1945-1965: Twenty Years of International Monetary Cooperation, Vol. 2 (Washington: International Monetary Fund, 1969), pp. 183-84. 24. See Charles A. Coombs, The Arena of International Finance (New York: John Wiley & Sons, 1976), pp. 53-57. 25. Solomon, International Monetary System, p. 41. Kristin Howell, "The Role of the Bank for International Settlements in Central Bank Cooperation," Journal of European Economic History, Vol. 22, No. 2 (Fall 1993), pp. 377-78. 26. Coombs, Arena, p. 86. 27. UB, Jacobsson diary 168, 1960 II, November 1960 lunch with William McChesney Martin. 28. Horsefield, International Monetary Fund, Vol. 1, p. 509. 29. UB, Jacobsson diary 181, December 1961. 30. Horsefield, International Monetary Fund, Vol. 1, p. 510. 31. UB, Jacobsson diary, 1961 II, November-December. Notes to Chapter 6 641

32. Horsefield, International Monetary Fund, Vol. 1, pp. 512-13. 33. Switzerland joined the IMF only in May 1992. 34. The text of the letter of December 15,1961 is reproduced in Horsefield, International Monetary Fund, Vol. 3, pp. 252-54. 35. Horsefield, International Monetary Fund, Vol. 1, p. 514. 36. DB B330/194, 127th Central Bank Council, Emminger's report on IMF Annual Meeting, October 11, 1962. 37. Ministerial Statement of the Group of Ten and Annex prepared by Deputies, August 10, 1964, submitted to the ministers and governors at their meeting in Paris on June 15-16, 1964. 38. Quoted in Margaret Garritsen de Vries, The International Monetary Fund 1966-1971: The System Under Stress, Vol. 1 (Washington: International Monetary Fund, 1976), pp. 41-42. 39. Alistair Home, Macmillan, Vol. 2, 1957-1986 (London: Macmillan, 1989), p. 284. 40. UB, Jacobsson diary, October 4, 1962. Also DB B330/194, 127th Central Bank Council, October 11, 1962 (Emminger's report on IMF Annual Meeting). 41. International Monetary Fund, Annual Report, 1964, p. 29. 42. Report to the Deputies of the Group of Ten, Rinaldo Ossola, Chairman, Study Group on the Creation of Reserve Assets, May 31, 1965, p. 17. 43. de Vries, International Monetary Fund 1966-1971, Vol. 1, p. 85. 44- de Vries, International Monetary Fund 1966-1971, Vol. 1, p. 109. 45. de Vries, International Monetary Fund 1966-1971, Vol. 1, p. 90. 46. de Vries, International Monetary Fund 1966-1971, Vol. 1, p. 68. 47. Joseph Gold, "Some Notes on the Creation of Reserve Assets" (unpublished, 1965). 48. J.-J. Servan-Schreiber, The American Challenge, translated by Ronald Steel (New York: Atheneum, 1968), p. 11 (French version: Le defi americain, 1967). 49. de Vries, International Monetary Fund 1966-1971, Vol. 1, p. 40. 50. Jean Lacouture, De Gaulle: The Ruler 1945-1970 (New York: Norton, 1992), p. 381. 51. M. Christian Borromee, "Le general de Gaulle et le probleme monetaire international," Espoir, Vol. 4, 1973, p. 21. 52. Valery Giscard d'Estaing, "La politique monetaire internationale de la France," in Problemes Economiques, No. 898, March 16, 1965, pp. 1-7. See also Michael D. Bordo, Dominique Simard, and Eugene White, "France and the Bretton Woods International Monetary System, 1960 to 1968," NBER Working Paper No. 4642 (Cambridge, Massachu- setts: National Bureau of Economic Research, 1994). 53. At the EEC Finance Ministers' Meeting in Munich, April 1967. See Alain Prate, Les batailks economiques du general de Gaulle (Paris: Plon, 1978), p. 224. 54. In 1966 a report by the French Director of the Treasury, Maurice Perousse, made exactly this demand (see Bordo, Simard, and White, "France and the Bretton Woods International Monetary System"). 55. de Vries, International Monetary Fund 1966-1971, Vol. 1, p. 159. 56. See Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the Interna- tional Monetary System (Chicago: University of Chicago Press, 1982), p. 152. 57. de Vries, International Monetary Fund 1966-1971, Vol. 2, p. 253. 642 INTERNATIONAL MONETARY COOPERATION

58. There is a useful discussion in International Monetary Fund, The Role of the SDR in the International Monetary System, IMF Occasional Paper No. 51 (Washington: International Monetary Fund, 1987). 59. Hendrik S. Houthakker, "The Breakdown of Bretton Woods," in Economic Advice and Executive Policy: Recommendations from Past Members of the Council of Economic Advisers, ed. by Werner Sichel (New York: Praeger, 1978), p. 61.

Chapter 7. Surveillance, Qrowth, and Crisis

1. Ferenc Janossy, The End of the Economic Miracle: Appearance and Reality in Economic Development, translated by Hedy D. Jellinek (White Plains, New York: International Arts and Sciences Press, 1971 (Hungarian original 1966)). Angus Maddison, Phases of Capitalist Development (Oxford: Oxford University Press, 1982), p. 127. Herman Van der Wee, Prosperity and Upheaval: The World Economy 1945-1980, translated by Robin Hogg and Max R. Hall (Berkeley: University of California Press, 1986), pp. 50-53. Knut Borchardt, "Trend, Cycles, Structural Breaks, Chance: What Determines Twentieth Century German Economic History," in Borchardt, Perspectives on Modern German Economic History, translated by Peter Lambert (Cambridge, England: Cambridge University Press, 1991), pp. 84-107. 2. See Arnulf Baring, Machtwechsel: Die Ara Brandt-Scheel (Stuttgart: Deutsche Verlags- Anstalt, 1982), p. 648. Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975 (Stanford, California: Stanford University Press, 1982). Eleanor M. Hadley, "The Diffusion of Keynesian Ideas in Japan," in The Political Power of Economic Ideas: Keynesianism Across Nations, ed. by Peter A. Hall (Princeton, New Jersey: Princeton University Press, 1989), p. 305. 3. Fritz Machlup, "The Magicians and Their Rabbits," Morgan Guaranty Survey, Mor- gan Guaranty Trust Company (New York), May 1971, p. 10. 4. Bank for International Settlements, Forty-Second Annual Report (Basle: Bank for International Settlements, 1972). Rene P. Higonnet, "Eurobanks, Eurodollars and Interna- tional Debt," and Jane Sneddon Little, "Comment," in Eurodollars and International Bank- ing, ed. by Paolo Savona and George Sutija (New York: St. Martin's Press, 1985), pp. 34, 53. Kathleen Burk, "Witness Seminar on the Origins and Early Development of the Eurobond Market," Contemporary European History, Vol. 1 (1992). 5. Jeffry A. Frieden, Banking on the World: The Politics of American International Finance (New York: Harper &. ROW, 1987), p. 85. Denis Healey, The Time of My Life (London: Michael Joseph, 1989), p. 412. 6. Alexander K. Swoboda, The Euro-Dollar Market: An Interpretation, Essays in Interna- tional Finance, No. 64 (Princeton, New Jersey: Princeton University Press, 1968), especially pp. 30-33. Andrew Crockett, International Money: Issues and Analysis (New York: Academic Press, 1977), pp. 172-80. Alexander K. Swoboda, Credit Creation in the Euromarket: Alternative Theories and Implications for Control (New York: Group of Thirty, 1980). Notes to Chapter 7 643

7. Sir George Bolton, "Background and Emergence of the Eurodollar Market," in The Eurodollar, ed. by Herbert V. Prochnow (Chicago: Rand McNally, 1970), pp. 8-9. 8. IMF CF, CPE/WP-3(67)8, Note by Emminger, "The Implications of an 'Early Warning System,' " March 20, 1967. 9. Cited in Diane B. Kunz, "Cold War Dollar Diplomacy: The Other Side of Contain- ment," in The Diplomacy of the Crucial Decade: American Foreign Relations During the 1960s, ed. by Diane B. Kunz (New York: Columbia University Press, 1994), p. 93. 10. Ministerial Statement of the Group of Ten and Annex Prepared by Deputies, August 10, 1964, submitted to the ministers and governors at their meeting in Paris on June 15-16, 1964, p. 5. 11. International Monetary Fund, Annual Report, 1964 (Washington: International Monetary Fund, 1964), p. 28. 12. IMF CF, S1813.7 (WP-3), July 24, 1967 Charles F. Schwartz memorandum. 13. Committee on the Working of the Monetary System (Radcliffe Committee), Report, Cmnd. 827 (London: H.M. Stationery Office, August 1959), pp. 135, 183, 184, 187, 242. 14- See Charles A.E. Goodhart, "Monetary Policy in the United Kingdom," in Monetary Policy in Twelve Industrial Countries, ed. by Karel Holbik (Boston: Federal Reserve Bank of Boston, 1973). 15. For a critical view, see A.A. Walters, "The Radcliffe Report—Ten Years After: A Survey of Empirical Evidence," in Money in Britain 1959—1969, ed. by David R. Croome and Harry G. Johnson (London: Oxford University Press, 1970), p. 64-65. 16. IMF CF, C/UK/810, April 23, 1965, Lord Cromer (Governor of the Bank of England), personal letter to Schweitzer. 17. Susan Strange, Sterling and British Policy: A Political Study of an International Currency in Decline (London: Oxford University Press, 1971), p. 80. 18. Fred Hirsch, The Pound Sterling: A Polemic (London: Victor Gollancz, 1965), p. 101. 19. James Callaghan, Time and Chance (London: Collins, 1987), p. 159. Austen Morgan, Harold Wilson (London: Pluto Press, 1992), pp. 264-65. 20. Hirsch, Pound, p. 103. 21. Charles A. Coombs, The Arena of International Finance (New York: John Wiley, 1976), p. 137. 22. IMF CF, S1813.7 (WP-3), visit of Schweitzer to London, January 1967. 23. Harold Wilson, The Labour Government 1964-1970: A Personal Record (London: Weidenfeld and Nicolson, 1971), pp. 400, 440. 24. Anthony Howard, ed., The Crossman Diaries: Selections from the Diaries of a Cabinet Minister 1964-1970 (London: Hamish Hamilton, 1979), p. 353. 25. Alec Cairncross and Barry Eichengreen, Sterling in Decline: The Devaluations of 1931, 1949 and 1967 (Oxford: Basil Biackwell, 1983), pp. 188-89. 26. This account relies for the depiction of relations between the United Kingdom and the IMF on IMF CF, S121, February 1, 1968, Albin Pfeifer memorandum, The Devaluations of November 1967, and C/UK/1760, November 8, 1967 and November 15, 1967, memoranda of Frank A. Southard. 27. Howard, Crossman Diaries, pp. 355-56. 644 INTERNATIONAL MONETARY COOPERATION

28. IMF CF, C/UK/1760, November 15, 1967, Frank A. Southard note; November 22, 1967, Frank A. Southard memorandum, Proposed U.K. Stand-By. 29. Keesings Contemporary Archives, Vol. 16 (1967-1968), p. 22393. 30. Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the International Monetary System (Chicago: University of Chicago Press, 1982), p. 184. 31. Jacques R. Artus, "The 1967 Devaluation of the Pound Sterling," Staff Papers, International Monetary Fund, Vol. 22 (November 1975), pp. 595-640. 32. See Margaret Garritsen de Vries, The International Monetary Fund 1966-1971: The System Under Stress, Vol. 1 (Washington: International Monetary Fund, 1976), p. 443. 33. International Monetary Fund, International Financial Statistics, 1973 Supplement, pp. 26-27. 34. IMF CF, S1813.7, March 30, 1967, Blessing to Martin; March 30, 1967, Kiesinger to Blessing. 35. IMF CF, S1813.7, March 6, 1967, letter from van Lennep to Schlecht in Federal Economics Ministry on WP-3 meetings of January 23, 1967 and March 1-3, 1967. 36. IMF CF, S1813.7, September 15, 1967, Charles F. Schwartz memorandum on WP- 3 meetings of August 28-29, 1967. 37. International Monetary Fund, International Financial Statistics, 1973 Supplement, pp. 228-29. 38. Yasukichi Yasuba, "Imported Inflation and the Upward Revaluation of the Yen," in Breadth and Depth in Economics: Fritz Machlup—The Man and His Ideas, ed. by Jacob S. Dreyer (Lexington, Massachusetts: Lexington Books, 1978), p. 226. 39. IMF CF, S123, June 3, 1968, discussion with U.S. officials. 40. Coombs, Arena, p. 183. 41. Baring, Machtwechsel, pp. 140-44. 42. ME B12533, November 20, 1968, handwritten notes (Claude Pierre-Brossolette). 43. J.J. Polak, November 26, 1968, Note on G-10 Ministers and Governors Meeting, November 20-22, 1968, Bonn. 44. ME 12533, December 20, 1968, Note pour le ministre (J.H. Wahl). 45. ME B12533, November 20, 1968, handwritten notes (Claude Pierre-Brossolette). 46. ME B12533, November 20, 1968, handwritten notes (Claude Pierre-Brossolette). Polak, November 26, 1968 note. 47. Otmar Emminger, D-Mark, Dollar, Wdhrungskrisen: Erinnerungen eines ehemaligen Bundesbanhprdsidenten (Stuttgart: Deutsche Verlags-Anstalt, 1986), p. 146. 48. According to Paris-Match, No. 1021, November 30, 1968. 49. Roy Jenkins, A Life at the Centre (London: Macmillan, 1991), pp. 268-69. 50. After being persuaded by his friend, the Minister of Social Affairs, Jean-Marcel Jeanneney. See Alain Prate, Les batailles economiques du general de Gaulle (Paris: Plon, 1978), p. 270. 51. Polak, November 26, 1968 note. 52. IMF CF, S1813.7, December 18, 1968, Charles F. Schwartz memorandum on WP- 3 meeting of December 1968. 53. Baring, Machtwechsel, pp. 144-45. 54. IMF CF, S1813.7, November 4, 1969, J.J. Polak memorandum on WP-3 meeting of October 30-31, 1969; figures given by Emminger. Notes to Chapter 8 645

55. IMF CF, S1813.7, November 4, 1969, J J. Polak memorandum on WP-3 meeting of October 30-31, 1969. 56. The diagnosis of imported inflation is set out in Otmar Emminger, "Deutsche Geld- und Wahrungspolitik im Spannungsfeld zwischen innerem und ausserem Gleichgewicht (1948-1975)," in Deutsche Bundesbank, Wdhrung und Wirtschaft in Deutschland 1876-1975 (Frankfurt: Fritz Knapp, 1976), pp. 485-554. 57. See Bela Balassa, "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, Vol. 72 (December 1964), pp. 584-96. 58. Van der Wee, Prosperity and Upheaval, pp. 81-82. See, in general, Robert J. Flanagan, David W. Soskice, and Lloyd Ulman, Unionism, Economic Stabilization, and Incomes Policies: European Experience (Washington: Brookings Institution, 1983). 59. See Andrea Boltho, The European Economy: Growth and Crisis (Oxford: Oxford University Press, 1982), pp. 176-77. 60. See Tamim Bayoumi, "Saving-Investment Correlations: Immobile Capital, Gov- ernment Policy, or Endogenous Behavior?" Staff Papers, International Monetary Fund, Vol. 37 (June 1990), pp. 360-87. 61. Otmar Emminger, June 12, 1969, speech at University of Cologne, "The Position of the DMark in the International Monetary System." 62. February 22, 1965 letter of Robert Triffin to de Gaulle, reproduced in Espoir, Vol. 4(1973), pp. 37-40, at p. 39. 63. Report to the Council and the Commission on the Realization by Stages of Economic and Monetary Union in the Community (Luxembourg, 1970).

Chapter 8. The End of Bretton Woods?

1. Walter S. Salant and others, The United States Balance of Payments in 1968 (Washing- ton: Brookings Institution, 1963). 2. Guillaume Guindey, The International Monetary Tangle: Myths and Realities, translated by Michael L. Hoffman (White Plains, New York: M.E. Sharpe, 1977; French original, 1973), p. 111. 3. International Economic Policy Association, The United States Balance of Payments: From Crisis to Controversy (Washington: International Economic Policy Association, 1972), pp. 13-14. 4. Economic Report of the President, Transmitted to the Congress January 1972 (Washing- ton: U.S. Government Printing Office, 1972), p. 269. 5. International Monetary Fund, International Financial Statistics Yearbook, 1991 (Wash- ington: International Monetary Fund, 1991), p. 754. 6. Economic Report of the President, Transmitted to the Congress January 1978 (Washing- ton: U.S. Government Printing Office, 1978), p. 368. 7. Margaret Garritsen de Vries, The International Monetary Fund 1966-1971: The System Under Stress, Vol. 1 (Washington: International Monetary Fund, 1976), pp. 313-15. There had been earlier drawings in 1964 and 1965 for technical reasons: the Fund at 646 INTERNATIONAL MONETARY COOPERATION this stage held dollars above 75 percent of the U.S. quota and as a result could not accept dollars in repurchases. The United States needed to make a drawing in a currency that the Fund could accept. 8. Charles A. Coombs, The Arena of International Finance (New York: John Wiley, 1976), p. 171. 9. Richard Nixon, R.N.: The Memoirs of Richard Nixon (New York: Grosset & Dunlap, 1978). 10. H.R. Haldeman, The Haldeman Diaries: Inside the Nixon White House, ed. by Stephen E. Ambrose (New York: G.P. Putnam's Sons, 1994), pp. 374-75. 11. News briefing of July 1971, quoted in John Lewis Gaddis, Strategies of Containment: A Critical Appraisal of Postwar American National Security Policy (New York: Oxford University Press, 1982), p. 280. 12. Paul A. Volcker and Toyoo Gyohten, Changing Fortunes: The World's Money and the Threat to American Leadership (New York: Times Books, 1992), p. 62. 13. Joanne Gowa, Closing the Gold Window: Domestic Politics and the End of Bretton Woods (Ithaca, New York: Cornell University Press, 1983), p. 101. 14. Volcker and Gyohten, Changing Fortunes, p. 81. 15. John S. Odell, U.S. International Monetary Policy: Markets, Power, and Ideas as Sources of Change (Princeton, New Jersey: Princeton University Press, 1982), p. 263. Henry R. Nau, The Myth of America s Decline: Leading the World Economy into the 1990s (New York: Oxford University Press, 1990), p. 162. 16. Gowa, Closing, pp. 63-70. 17. Volcker and Gyohten, Changing Fortunes, p. 61. 18. IMF CF, S371, April 23, 1970 G-10 deputies meeting, informal record. For a presentation of the "n — 1" problem, see Charles P. Kindleberger, "The Price of Gold and the N — 1 Problem," in Kindleberger, International Money: A Collection of Essays (London: Allen & Unwin, 1981). The essay was originally published in 1970. 19. IMF CF, C/US/1000, June 23, 1970, Frank A. Southard memorandum: Conversa- tion with Dr. Emminger. 20. ME 12533 1970, handwritten note of President Georges Pompidou. 21. International Monetary Fund, Summary Proceedings, 1970 (Washington: Interna- tional Monetary Fund, 1970), pp. 81-82. 22. Hendrik S. Houthakker, "Cooling Off the Money Crisis," Wall Street Journal, March 16, 1973. 23. GRF, Burns papers, B65, International (Solomon) paper: Options open to the United States in dealing with what may be an Emerging International Monetary Crisis. 24. Arthur M. Okun, The Political Economy of Prosperity (Washington: Brookings Institution, 1970), p. 15. 25. For an English language account of their position, see German Council of Economic Experts, Toward a New Basis for International Monetary Policy, Princeton Studies in International Finance No. 31 (Princeton, New Jersey: Princeton University Press, 1972). 26. John H. Williamson, The Crawling Peg, Essays in International Finance No. 50 (Princeton, New Jersey: Princeton University Press, 1965). 27. The paper is reproduced in de Vries, International Monetary Fund 1966-1971, Vol. 2, pp. 273-330. The quotation is from p. 311. 28. IMF CF, S371, April 23, 1970 G-10 deputies meeting. Notes to Chapter 8 647

29. World Economic Outlook figures, April 1972. 30. Otmar Emminger, D-Mark, Dollar, Wa'hrungskrisen: Erinnerungen eines ehemaligen Bundesbankprdsidenten (Stuttgart: Deutsche Verlags-Anstalt, 1986), p. 186. 31. At the G-10 meeting of April 23, 1970 (IMF CF, S371). 32. IMF CF, C/Germany/810, April 29, 1971, L.A. Whittome notes. 33. IMF CF, C/Germany/810, May 3, 1971 memorandum: April 30, 1971 meeting. 34. Volcker and Gyohten, Changing Fortunes, p. 75. Economic Report of the President, 1972, p. 145. IMF CF, C/US/820, April 8, 1971 memorandum: Luncheon Meeting with Secretary Connally, April 7, 1971. 35. IMF CF, S123, Southard memorandum, May 17, 1971 meeting of Schweitzer with Connally. 36. U.S. Congress, Joint Economic Committee, Report of the Subcommittee on Inter- national Exchange and Payments, Action Now to Strengthen the U.S. Dollar, 92nd Congress, 1st Session (Washington: U.S. Government Printing Office, 1971), pp. 4, 8, 11, 13, 14. 37. U.S. Congress, Joint Economic Committee, Action Now. See also Robert Solomon, The International Monetary System, 1945-1976: An Insider's View (New York: Harper &. Row, 1977), pp. 181. 38. GRF, Burns papers, K31, August 16, 1971, William Safire, Notes on Camp David Weekend; B65, International Monetary Crisis 1971 (2), August 13, 1971, memorandum from Coombs to Burns. 39. IMF CF, S123, August 16, 1971, Frank A. Southard memorandum, U.S. Dollar: Events of August 15, 1971. 40. IMF CF, SI23, August 20, 1971, conversation with Mr. Kashiwagi. 41. GRF, Burns papers, B65, International Monetary Crisis (3), August 18, 1971, Recent Economic Developments in Japan; August 19, 1971, Yen Revaluation and Long- Term Foreign Credits. 42. ME B12535, August 17, 1971, Note pour le ministre: Reunion a Londres organisee par M. Volcker (Pierre-Brossolette). 43. ME B12535, August 17, 1971, meeting of Giscard d'Estaing and Paul Volcker. 44. Speech to Los Angeles World Affairs Council, December 4, 1970. 45. Emminger, D-Mar/c, p. 198. 46. IMF CF, SI23, September 7, 1971, Dollar Crisis: Conversation with Under Secre- tary Volcker. 47. IMF CF, SI23, August 23, 1971, Schweitzer interview with Irving Levine; Au- gust 24, 1971, Schweitzer interview with BBC. 48. Address to UN Economic and Social Council, October 27, 1971. 49. IMF CF, S123, J.M. Fleming, September 12, 1969, Hypothetical Exchange Rate Changes and Their Trade Effects; R.R. Rhomberg, May 29, 1969, Hypothetical Exchange Rate Changes and Their Trade Effects. 50. Jacques R. Artus and Rudolf R. Rhomberg, UA Multilateral Exchange Rate Model," Staff Papers, International Monetary Fund, Vol. 20 (November 1973), pp. 591-611. 51. GRF, Burns papers, B65, International Monetary Crisis 1971 (2), August 17, 1971, Samuel Pizer memorandum. 52. IMF CF, S123, August 23 and August 27, 1971, Exchange Rate Changes Required to Achieve Balance of Payments Targets; see also SI23, August 22-23, 1971, meetings with Ossola. 648 INTERNATIONAL MONETARY COOPERATION

53. IMF CF, EBM/71/88, August 16, 1971 afternoon session. See also de Vries, Interna- tional Monetary Fund 1966-1971, Vol. 1, p. 537. 54. Wall Street Journal, October 16, 1971, p. 8. 55. IMF CF, SI23, August 27, 1971, Research Department, Some Thoughts on the Future Position of the U.S. Dollar in the International Monetary System. 56. IMF CF, S123, IS/71/16, October 22, 1971. A quotation from the U.S. Executive Director, William Dale, speaking in a "personal capacity." 57. Organization for Economic Cooperation and Development, Working Party 3, October 4, 1971, 71/7, The Scale of the United States Adjustment Problem and the Implications for Other Countries (copy in ME B12536). 58. Peter Jay, "Group of Ten Ministerial Meeting Ends with Minimal Agreement on Reform," The Times (London), September 17, 1971. 59. IMF CF, S123, IS/71/16, October 22, 1971, statement by Economic Counsellor, G-10 deputies meeting, October 19-20, 1971. 60. IMF CF, SI23, May 17, 1971 meeting of Schweitzer with Connally. 61. IMFCF, SI 23, memorandum of September 23,1971 on G-10 meeting of September 15-16, 1971. 62. Jay, "Group of Ten," The Times, September 17, 1971. 63. IMF CF S123, August 24, 1971, Schweitzer interview with BBC. 64 ME B12535, September 2, 1971, EEC Monetary Committee. September 15, 1971 manuscript notes of G-10 meeting. September 21, 1971, Note pour le ministre (Pierre- Brossolette). 65. IMF CF, SI23, September 7, 1971, Dollar Crisis: Conversation with Under Secre- tary Volcker. 66. IMF CF, SI23, August 18, 1971, Southard memorandum of meeting of Volcker and Schweitzer. 67. IMF CF, S123, IS/71/16, October 22,1971. The speaker was Antoine W. Yameogo.

Chapter 9* Reform of the International Monetary System, or Nonsystem?

1. IMF CF, S1230, May 11, 1982, Research Department memorandum: The Size of the Fund. 2. Margaret Garritsen de Vries, The International Monetary Fund 1966-1971: The System Under Stress, Vol. 1 (Washington: International Monetary Fund, 1976), p. 425. 3. William S. Borden, "Defending Hegemony: American Foreign Economic Policy," in Kennedy's Quest for Victory: American Foreign Policy, 1961-1963, ed. by Thomas G. Paterson (New York: Oxford University Press, 1989), p. 69. 4- Benjamin J. Cohen, "The Revolution in Atlantic Economic Relations: A Bargain Comes Unstuck," in The United States and Western Europe: Political, Economic and Strategic Perspectives, ed. by Wolfram F. Hanrieder (Cambridge, Massachusetts: Winthrop Publish- ers, 1974), p. 125. Notes to Chapter 9 649

5- GRF, Burns papers, K31, William Safire, Notes on Camp David Weekend, Au- gust 13-15, 1971. 6. See Jagdish N. Bhagwati, "Export Market Disruption, Compensation and GATT Reform," in Bhagwati, ed., The New International Economic Order: The North-South Debate (Cambridge, Massachusetts: MIT Press, 1977), pp. 165-70. 7. General Agreement on Tariffs and Trade, Study on Textiles: Report of the Working Party on Trade in Textiles, L/3797, December 29, 1972, p. 14. 8. William R. Cline, The Future of World Trade in Textiles and Apparel (Washington: Institute for International Economics, rev. ed., 1990), p. 15. See also Ying-Pik Choi, Hwa Soo Chung, and Nicolas Marian, The Multi-Fibre Arrangement in Theory and Practice (London: Frances Pinter, 1985). Robert E. Hudec, The GATT Legal System and World Trade Diplomacy (New York: Praeger, 1975), p. 215. 9. IMF CF, C/US/820, June 14, 1972, Ernest Sturc memorandum: Views of U.S. Officials. 10. John Williamson, "Keynes and the International Economic Order," in Keynes and the Modern World: Proceedings of the Keynes Centenary Conference, King's College, Cam- bridge, ed. by David Worswick and James Trevithick (Cambridge, England: Cambridge University Press, 1983), p. 103. Gottfried Haberler, "How Important Is Control over International Reserves?" (1977), in Selected Essays of Gottfried Haberler, ed. by Anthony Y.C. Koo (Cambridge, Massachusetts: MIT Press, 1985), p. 215. See also Joseph Gold, Legal and Institutional Aspects of the International Monetary System, Selected Essays, Vol. 2 (Washington: International Monetary Fund, 1984), p. 69. 11. International Monetary Fund, Annual Report, 1975 (Washington: International Monetary Fund, 1975), p. 24. 12. Bank for International Settlements, Forty-Second Annual Report (Basle: Bank for International Settlements, 1972), p. 192. 13. GRF, Burns papers, B65, International Monetary Crisis 1971 (3), August 18, 1971, International Negotiations: Objectives, Issues, and Conclusions. 14. Robert Solomon, The International Monetary System 1945-1976: An Insider's View (New York: Harper & Row, 1977), p. 196. 15. Solomon, International Monetary System, pp. 204-205. 16. The following account is based primarily on the pencil and yellow pad notes taken during the course of the Smithsonian meeting by Pierre-Paul Schweitzer, IMF CF, S321, and in part also on a conversation of the author with the late Professor Karl Schiller. 17. Otmar Emminger, D-Mark, Dollar, Wdhrungskrisen: Erinnerungen eines ehemaligen Bundesbankprdsidenten (Stuttgart: Deutsche Verlags-Anstalt, 1986), p. 204. 18. IMF CF, S123, August 27, 1971, Exchange Rate Changes Required to Achieve Balance of Payments Targets. GRF, Burns papers, B65, International Monetary Crisis 1971 (2), August 19, 1971, Ralph C. Bryant, Helen B. Junz, and others, The Magnitude of the U.S. Imbalance and the Changes in Exchange Rates Required. 19. Edwin L. Dale, Jr., "Nixon Hails Pact," New York Times, December 19, 1971, p. 1. 20. International Monetary Fund, International Financial Statistics Yearbook, 1990 (Washington: International Monetary Fund, 1990), p. 730. 21. International Monetary Fund, International Financial Statistics Yearbook, 1991, pp. 90-91. 650 INTERNATIONAL MONETARY COOPERATION

22. Solomon, International Monetary System, p. 218. Emminger, D-Mark, p. 214. 23. Quoted in Milton Gilbert, Quest for World Monetary Order: The Gold-Dollar System and Its Aftermath (New York: John Wiley & Sons, 1980), p. 73. 24. Emminger, D-Mark, p. 220. 25. Arnulf Baring, Machtwechsel: Die Ara Brandt-Scheel (Stuttgart: Deutsche Verlags- Anstalt, 1982), pp. 671-72. 26. Emminger, D-Mark, p. 225. 27. "Swiss Decision to Float," The Times (London), January 24, 1973, p. 19. 28. IMF CF, SI23, February 12, 1973, A.D. Crockett memorandum: Meeting on Monetary Crisis (February 9, 1973). 29. Emminger, D-Mark, p. 240. IMF CF, C/US/820, March 7, 1973, Southard memorandum: Monetary Crisis, March 1-2, 1973. 30. Keesings Contemporary Archives, Vol. 19 (1973), p. 25950. See also International Monetary Fund, Annual Report, 1973, p. 6. 31. IMF CF, S371, Sterie T. Beza, memorandum for files, March 11, 1973: Paris Meetings: Deputies' Level (March 9, 1973). 32. Solomon, International Monetary System, p. 233. 33. Quoted in Cohen, "Revolution," 1974, p. 129. 34- See also James Reston, Jr., The Lone Star: The Life of John Connolly (New York: Harper & Row, 1989), p. 419. 35. Reform of the International Monetary System: A Report by the Executive Directors to the Board of Governors, August 18, 1972. The paper is reproduced in Margaret Garritsen de Vries, The International Monetary Fund 1972-1978: Cooperation on Trial, Vol. 3 (Wash- ington: International Monetary Fund, 1985), pp. 19-56. 36. International Monetary Fund, Summary Proceedings, 1972 (Washington: Interna- tional Monetary Fund, 1972), p. 167. 37. GRF, Burns papers, B73, International Monetary Reform, Robert Solomon and Arthur Burns memorandum, July 20, 1972. 38. For instance, by Jeremy Morse, the chairman of the C-20 deputies. 39. Jeremy Morse, "The Evolving Monetary System," address to the International Monetary Conference at Williamsburg, Virginia, June 7, 1974. The story of the C-20 is told in John Williamson, The Failure of World Monetary Reform 1971-74 (New York: New York University Press, 1977). 40. ME B12533, May 2, 1972, Emminger cable to Pierre-Brossolette; May 3, 1972, Pierre-Brossolette cable to Emminger (on the results of the April 4, 1972 G-10 meeting). 41. For instance, Solomon, International Monetary System, pp. 242-43. 42. International Monetary Fund, Summary Proceedings, 1972, pp. 38-42. 43. GRF, Burns papers, B2, Balance of Payments, November 14, 1972, Original Trea- sury Proposal. 44. WES 12:27, June 15, 1973, Quantitative Indicators from the Point of View of the Overall Operation of the System, prepared for Committee of Twenty, May 1973. 45. de Vries, International Monetary Fund 1972-1978, Vol. 1, p. 234. 46. ME B12540, OECD WP-3 meeting, November 17, 1972. 47. de Vries, International Monetary Fund 1972-1978, Vol. 1, p. 170. 48. ME B12535, August 19, 1971, in the EEC Council of Ministers. Notes to Chapter 9 651

49. ME B12533, May 17, 1972, Pierre-Brossolette: Note sur la reforme du systeme monetaire international. 50. Ibid. 51. Williamson, Failure, pp. 180-81. 52. Committee of Twenty, "Report of Technical Group on Disequilibrating Capital Flows, May 17 1973," in International Monetary Reform: Documents of the Committee of Twenty (Washington: International Monetary Fund, 1975), pp. 86-87. 53. See Joan Edelman Spero, The Failure of the Franklin National Bank: Challenge to the International Banking System (New York: Columbia University Press, 1980). 54. International Monetary Fund, International Financial Statistics Yearbook, 1990, pp. 90-91. 55. The Limits to Growth: A Report for the Club of Rome s Project on the Predicament of Mankind (New York: Universe Books, 1972). 56. International Monetary Fund, International Financial Statistics Yearbook, 1990, pp. 178-83. 57. Quoted in Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon & Schuster, 1991), p. 595. 58. See Edith Penrose, "The Development of Crisis," in The Oil Crisis, ed. by Raymond Vernon (New York: W.W. Norton, 1976), pp. 39-58. 59. Joseph Stanislaw and Daniel Yergin, "Oil: Reopening the Door," Foreign Affairs, Vol. 72, No. 4 (September/October 1993), p. 81. 60. Edward R. Fried and Charles L. Shultze, Higher Oil Prices and the World Economy: The Adjustment Problem (Washington: Brookings Institution, 1975). 61. Balance of payments figures from International Monetary Fund, International Finan- cial Statistics Yearbook, 1990, pp. 146-47. 62. C-20 communique of March 27, 1973, reproduced in "Statement on Money Talks," New York Times, March 28, 1973, p. 65. 63. H. Johannes Witteveen, January 15, 1974 address to World Banking Conference, London, "The Role of the International Monetary Fund." 64. IMF CF, C-20 deputies, fourth session, January 15, 1974. 65. IMF CF, C-20 ministers, first session, January 17, 1974. 66. Christopher McMahon, in C-20 deputies, third session, January 15, 1974. 67. de Vries, International Monetary Fund 1972-1978, Vol. 3, p. 165. 68. European Community Proposal (reported by Helmut Schmidt), C-20 Rome ministerial meeting, second session, January 17, 1974. 69. de Vries, International Monetary Fund 1972-1978, Vol. 3, pp. 487-91 (Decision No. 4232^(74/67) of June 13, 1974). 70. International Monetary Fund, International Financial Statistics Yearbook, 1990, pp. 142-43. 71. Morse at Williamsburg International Monetary Conference, "The Evolving Mone- tary System," June 7, 1974. 72. International Monetary Fund, Summary Proceedings, 1976, p. 93. 73. Joseph Gold, "Law and Reform of the International Monetary System," in Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays, Vol. 1 (Washington: International Monetary Fund, 1979), pp. 94-97. 652 INTERNATIONAL MONETARY COOPERATION

Chapter 10. Personalities and Institutions: The Redesigning of the International Monetary Order

1. Walther Rathenau, "Unser Nachwuchs," Neue Freie Presse (Vienna), December 25, 1909. 2. International Monetary Fund, Annual Report, 1975 (Washington: International Monetary Fund, 1975), p. 20. 3. International Monetary Fund, Annual Report, 1974, pp. 9-10. 4. International Monetary Fund, Annual Report, 1975, p. 9. 5. International Monetary Fund, Annual Report, 1976, p. 11. 6. International Monetary Fund, Annual Report, 1979, p. 7. 7. See Paul Volcker and Toyoo Gyohten, Changing Fortunes: The World's Money and the Threat to American Leadership (New York: Times Books, 1992), pp. 126-27,134. George P. Shultz, Turmoil and Triumph: M;y Years as Secretary of State (New York: Scribner's, 1993), p. 148. 8. Robert D. Putnam and Nicholas Bayne, Hanging Together: The Seven-Power Summits (Cambridge, Massachusetts: Harvard University Press, 1984), pp. 15,17. Helmut Schmidt, Menschen und Mdchte (Berlin: Siedler Verlag, 1987), p. 193. Shultz, Turmoil, p. 148. 9. GRF, Seidman papers 312, International Economic Summit, November 1975, Mem- oranda (1), October 7, 1975, Bob Evers: Memorandum for Roger Porter. 10. Otmar Emminger, D-Mark, Dollar, Wdhrungskrisen: Erinnerungen eines ehemaligen Bundesbankprdsidenten (Stuttgart: Deutshe Verlags-Austalt, 1986), p. 297. 11. WES 25:36, November 3, 1975, Yeo to Shultz, enclosing French and U.S. drafts for Memorandum of Understanding. 12. IMF CF, S815, December 2, 1975, William Dale memorandum: Exchange Rate Agreement. 13. GRF, Seidman papers 312, International Economic Summit, Memos and Notes on Discussions. Memorandum of Conversation, first session, November 15, 1975; third session, November 16, 1975 (Kissinger). 14. Keesings Contemporary Archives, Vol. 22 (1976), p. 27502. 15. Putnam and Bayne, Hanging Together, p. 31. 16. G-10 communique, December 19,1975, reproduced in Margaret Garritsen de Vries, The International Monetary Fund 1972-1978: Cooperation on Trial, Vol. 3 (Washington: International Monetary Fund, 1985), pp. 632-33. 17. de Vries, The International Monetary Fund 1972-1978, Vol. 2, p. 761. 18. International Monetary Fund, Annual Report, 1979, p. 40, and Annual Report, 1978, p. 43. 19. International Monetary Fund, Annual Report, 1978, p. 43. 20. Decision No. 5392-(77/63), April 29, 1977, Selected Decisions and Selected Docu- ments of the International Monetary Fund (Washington: International Monetary Fund, 1994) pp. 8-14. 21. International Monetary Fund, Annual Report, 1983, p. 64, and Annual Report, 1990, p. 13. See also Leo Van Houtven, "Half a Century After Bretton Woods: The Role of the IMF in the International Monetary System," in Monetary Stability Through International Cooperation: Essays in Honour of Andre Szdsz, ed. by Age Bakker, Henk Notes to Chapter 10 653

Boot, Olaf Sleijpen, and Wim Vanthoor (Amsterdam: De Nederiandsche Bank, 1994), pp. 283-96. 22. International Monetary Fund, Annual Report, 1980, p. 57. 23. de Vries, International Monetary Fund 1972-1978, Vol. 2, p. 786. 24- IMF CF, January 17, 1974, C-20 meeting, first session. The deterioration of the balance on current account for the industrial countries other than the United States was estimated at $45 billion, for the United States at $3-4 billion, and for the developing countries at $15 billion. 25. IMFCF, S321, ID/75/2, May 21,1975, World Economic Outlook—General Survey. July 7, 1976, World Economic Outlook—General Survey. 26. See, for instance, the influential article by Jeffrey D. Sachs, "The Current Account and Macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, 1981(1), pp. 201-68. 27. IMF CF, S321, ID/77/5, June 28, 1977, World Economic Outlook—General Survey. 28. IMF CF, S321, December 4,1978, L.A. Whittome memorandum: World Economic Outlook Paper; IS/78/4, April 14, 1978, where the German Executive Director suggests that the emphasis should be on "continued" rather than "greater" growth. 29. WES 25:37, May 14, 1976, Yeo to Simon. 30. Kathleen Burk and Alec Cairncross, 'Goodbye, Great Britain': The 1976 IMF Crisis (New Haven, Connecticut: Yale University Press, 1992), pp. 22-23. The earliest detailed account of the crisis was published in the Sunday Times (London), May 14, 21, and 28, 1978: Stephen Fay and Hugo Young, "The Day the Pound Nearly Died." 31. WES 27:13, June 7, 1976, Simon Memorandum for the President. 32. Susan Crosland, Tony Crosland (London: Jonathan Cape, 1982), pp. 377-78. 33. Edmund Dell, A Hard Pounding: Politics and Economic Crisis 1974-76 (Oxford: Oxford University Press, 1991), p. 221. 34. Tony Benn, Against the Tide: Diaries 1973-76 (London: Hutchinson, 1989), p. 624. Burk and Cairncross, 'Goodbye,' pp. 66-67. 35. Dell, Hard Pounding, p. 220. 36. Dell, Hard Pounding, p. 268. 37. The text of the letter of intent is reproduced in Burk and Cairncross, 'Goodbye.' The quotation is on p. 235. 38. This was explicitly stated in a conversation between the British Chancellor An- thony Barber and the French Finance Minister Valery Giscard d'Estaing in 1971: ME B12533, September 9, 1971, Compte-Rendu des entretiens francais-britanniques. 39. Denis Healey, The Time of My Life (London: Michael Joseph, 1989), p. 433. 40. Dell, Hard Pounding, p. 250. Burk and Cairncross, 'Goodbye,' p. 72, and others have raised the possibility of a "conspiracy" by the Treasury to force the IMF on the U.K. government. 41. Peter Jenkins, Mrs Thatcher's Revolution: The Ending of the Socialist Era (London: Jonathan Cape, 1987), p. 18. "Long March Back to Prosperity Is On, Mr. Callaghan States," The Times (London), September 29, 1976, p. 4. 42. Luigi Spaventa, "Two Letters of Intent: External Crises and Stabilization Policy, Italy 1973-77," in IMF Conditionality, ed. by John Williamson (Washington: Institute for International Economics, 1983), p. 447. 654 INTERNATIONAL MONETARY COOPERATION

43. International Monetary Fund, International Financial Statistics Yearbook, 1992, p. 430. 44- John B. Goodman, Monetary Sovereignty: The Politics of Central Banking in Western Europe (Ithaca, New York: Cornell University Press, 1992), p. 154. 45. IMF CF, C/Italy/810, June 12, 1975, CD. Finch note. 46. IMF CF, C/Italy/810, February 25, 1976, L.A. Whittome note; March 25, 1976, L.A. Whittome note. 47. Quoted in de Vries, International Monetary Fund 1972-1978, Vol. 1, p. 453. 48. WES 22:62, July 13, 1976, Simon Memorandum for the President. 49. IMF CF, C/Italy/810, December 23, 1976, L.A. Whittome note. 50. IMF CF, C/Italy/810, January 12, 1977, D.W. Green note. 51. IMF CF, C/Italy/810, March 11, 1977, L.A. Whittome cable. 52. Spaventa, Two Letters, p. 461. IMFCF, C/Italy/1760, April 11,1977, memorandum: Italy: Request for Stand-By Arrangement. 53. See Peter J. Katzenstein, Small States in World Markets: Industrial Policy in Europe (Ithaca, New York: Cornell University Press, 1985), pp. 39-79. Herman Van der Wee, Prosperity and Upheaval: The World Economy 1945-1980, translated by Robin Hogg and Max R. Hall (Berkeley: University of California Press, 1986), pp. 327-28. 54. International Monetary Fund, Annual Report, 1976, p. 18. 55. Sachverstandigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung: Jahresgutachten 1977/78. 56. See Emminger, D-Mark, p. 399. See also Charles Goodhart, "The Conduct of Monetary Policy," Economic Journal, Vol. 99 (June 1989), p. 300. 57. "Should Japan Panic?" Economist, November 24, 1973, pp. 82-83. "Japan's Hypo- chondria," Far Eastern Economic Review, May 13, 1974, p. 5. 58. Yoshio Suzuki, Japan's Economic Performance and International Role (Tokyo: Univer- sity of Tokyo Press, 1989), p. 14. 59. IMF CF, G142.42, William Simon at the Interim Committee in Manila, Octo- ber 2, 1976. 60. Milton Friedman, "Monetary Policy: Theory and Practice," Journal of Money, Credit, and Banking, Vol. 14 (February 1982), pp. 108-109. Goodhart, "Conduct," p. 300. 61. See also Volcker and Gyohten, Changing Fortunes, p. 146. 62. Putnam and Bayne, Hanging Together, p. 69. 63. Keesing's Contemporary Archives, Vol. 23 (1977), p. 28470. 64. Hobart Rowen, "Bitterness with Bonn," Washington Post, March 5, 1978, pp. M1-M2. 65. Robert D. Putnam and C. Randall Henning, "The Bonn Summit of 1978: A Case Study in Coordination," in Can Nations Agree? Issues in International Economic Cooperation (Washington: Brookings Institution, 1989), p. 41. IMF CF, S321, ID77/5, June 28, 1977, World Economic Outlook—General Survey. International Monetary Fund, International Financial Statistics Yearbook, 1992, p. 149. 66. IMF CF, G142.42, September 24, 1977, Interim Committee meeting, Washington. 67. Address to Conference Board in New York, February 15, 1978. 68. Putnam and Henning, "Bonn Summit," p. 52. 69. International Monetary Fund, Annual Report, 1978, p. 30. Notes to Chapter 10 655

70. IMF CF, S321, March 31, 1978, World Economic Outlook—General Survey, pp. 24-25. 71. de Vries, International Monetary Fund 1972-1978, Vol. 1, p. 533. 72. Emminger, D-Mar/c, pp. 422-24. 73. "Forschungsinstitute kritisieren Geldmengenpolitik der Bundesbank," Frankfurter Allgemeine Zeitung, March 29, 1978. 74. Putnam and Henning, "Bonn Summit," p. 71. 75. Putnam and Bayne, Hanging Together, pp. 86-89. 76. Figures given by Treasury Under-Secretary for Monetary Affairs, Anthony M. Solomon, Forex Research Ltd. conference, "The Management of Foreign Exchange Risks," New York, May 15, 1978. 77. Helmut Schmidt interview. "Kanzler Schmidt: Ich war und bin Atlantiker und Europaer," Die Welt, July 14, 1978, p. 3. 78. Schmidt, Menschen, p. 317. 79. Gerald Holtham, "German Macroeconomic Policy and the 1978 Bonn Summit," in Can Nations Agree? Issues in International Economic Cooperation, p. 157. 80. International Monetary Fund, International Financial Statistics Yearbook, 1992, p. 142. 81. Holtham, "German Macroeconomic Policy," p. 173. 82. Wilfried Guth, "Summary and Conclusions," in Economic Policy Coordination, ed. by Wilfried Guth (Washington: International Monetary Fund, 1988), p. 211. 83. Bank for International Settlements, Fifty-First Annual Report (Basle: Bank for International Settlements, 1981), pp. 66, 68. 84. See Edward J. Lincoln, Japan: Facing Economic Maturity (Washington: Brookings Institution, 1988), pp. 99-102. 85. Reform of the International Monetary System: A Report by the Executive Directors to the Board of Governors, August 18 1972, reproduced in de Vries, International Monetary Fund 1972-1978, Vol. 3, pp. 41-43, sets out the fundamental philosophy of the Substitu- tion Account. 86. Rudolf R. Rhomberg, "Failings of the SDR: Lessons from Three Decades," in International Financial Policy: Essays in Honor of Jacques J. Polak, ed. by Jacob A. Frenkel and Morris Goldstein (Washington: International Monetary Fund and De Nederlandsche Bank, 1991), p. 168. 87. International Monetary Fund, Annual Report, 1990, and Annual Report, 1991, Table 1.2. 88. Emminger, D-Mar/c, p. 364. 89. Robert Triffin, "Summary and Conclusions," in The European Monetary System: Origins, Operation and Outlook, by Jacques van Ypersele with Jean-Claude Koeune (Luxem- bourg: Office for Official Publications of the European Communities, 1984), p. 11. 90. Jonathan Story, "The Launching of the EMS: An Analysis of Change in Foreign Economic Policy," Political Studies, Vol. 36 (1988), p. 397. 91. Roy Jenkins, A Life at the Centre (London: Macmillan, 1991), p. 462. 92. Jenkins, A Life, p. 467. 93. Peter Ludlow, The Making of the European Monetary System: A Case Study of the Politics of the European Community (London: Butterworth Scientific, 1982), pp. 97-101. 656 INTERNATIONAL MONETARY COOPERATION

94. Jenkins, A Life, p. 478. 95. Edmund Dell, "Britain and the Origins of the European Monetary System," Contem- porary European History, Vol. 3 (1994), pp. 29-30. 96. Schmidt, Menschen, p. 190. 97. Joseph Gold, "A New Universal and a New Regional Monetary Asset: SDR and ECU," in Gold, Legal and Institutional Aspects of the International Monetary System, Selected Essays, Vol. 2 (Washington: International Monetary Fund, 1984), pp. 659-722. 98. Dell, "Britain and the Origins," p. 39. 99. Ludlow, Making, pp. 109-17. 100. ME Z9943, February 1980, Tentative devaluation des avantages et des contraintes, pour la France, de sa participation au systeme monetaire europeen; also see Decem- ber 11, 1978, Article IV consultation. 101. Jenkins, A Life, p. 481. 102. Ypersele with Koeune, European Monetary System, p. 49. 103. Wilhelm Nolling, Unser Geld: Der Kampfum die Stabilitdt der Wdhrungen in Europa (Berlin: Ullstein, 1993), pp. 56-57. 104. ME Z9943, 244th meeting of EC Monetary Committee, October 10-11, 1978. 105. IMF CF, S375, July 12, 1978, Aldo Guetta cable for Managing Director. 106. Ludlow, Making, pp. 159-65. Goodman, Monetary Sovereignty, pp. 193-94. 107. Jenkins, A Life, p. 482. 108. David Marsh, The Bundesbank: The Bank that Rules Europe (London: Heinemann, 1992), p. 233. 109. Erik Hoffmeyer, The International Monetary System: An Essay in Interpretation (Amsterdam: North-Holland, 1992), p. 129. 110. Jenkins, A Life, pp. 483-84. 111. Dell, "Britain and the Origins," p. 48. 112. IMF CF, SM/78/294, December 15, 1978, The European Monetary System: A Paper for Discussion. See also ME Z9943, June 2, 1980, Le systeme monetaire europeen vu par le Fond Monetaire International. 113. Ludlow, Making, p. 274. Jenkins, A Life, p. 488. 114. IMF CF, IS/78/13, December 21, 1978, Chairman's concluding remarks. 115. Keesings Contemporary Archives, Vol. 25 (1979), p. 29569. Putnam and Bayne, Hanging Together, p. 96. The President of the Bundesbank pointed out that he hoped that these arrangements would not need to be used. 116. IMF CF, C/US/820, January 12, 1978, William B. Dale memorandum: U.S. Views—Intervention, Gold and SFF. 117. International Monetary Fund, Annual Report, 1979, p. 40, and Annual Report, 1980, p. 48. Hobart Rowen, "No Limits on Intervention for Dollar, Official Says," Washington Post, November 20, 1978, p. B13. Hobart Rowen, "Carter Aides Affirm Austere Economy," Washington Post, December 15, 1978, p. Al. 118. Dianne Pauls, "U.S. Exchange Rate Policy: Bretton Woods to Present," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, Vol. 76, No. 11 (November 1990), p. 902. 119. Schmidt, Menschen, p. 318. William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon and Schuster, 1987), pp. 118-23. Notes to Chapter 11 657

120. Anthony Y.C. Koo, ed., Selected Essays of Gottfried Haberler (Cambridge, Massa- chusetts: MIT Press, 1985), p. 238. Tim Congdon, The Debt Threat: The Dangers of High Real Interest Rates for the World Economy (Oxford: Basil Blackwell, 1988), p. 91. Volcker and Gyohten, Changing Fortunes, pp. 169-70. 121. IMF CF, S321, June 29, 1977, World Economic Outlook—General Survey. 122. International Monetary Fund, Annual Report, 1979, p. 40, and Annual Report 1980, pp. 35, 37. 123. Interim Committee communique, April 25, 1980, reproduced in International Monetary Fund, Annual Report, 1980, p. 154. 124. "Timely adjustment is as important for developing countries as for developed countries." International Monetary Fund, Annual Report, 1985, p. 44.

Chapter 11, The 1970s: Capital Markets Versus the New International Economic Order

1. Ronald I. McKinnon, "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, Vol. 31 (March 1993), p. 30. 2. Quoted in Margaret Garritsen de Vries, The International Monetary Fund 1972- 1978: Cooperation on Trial, Vol. 1 (Washington: International Monetary Fund, 1985), pp. 337-38. 3. Keesings Contemporary Archives, Vol. 20 (1974), pp. 26548-49. 4. Jan Tinbergen, Reshaping the International Order: A Report to the Club of Rome (New York: E.P. Dutton, 1976), pp. 63, 71, 79. 5. Keesings Contemporary Archives, Vol. 21 (1975), p. 27010. 6. Tinbergen, Reshaping, p. 126. 7. The latter was proposed by I.G. Patel: The Link Between the Creation of International Liquidity and the Provision of Development Finance (Geneva: United Nations Conference on Trade and Development, 1967). See also Harry G. Johnson, Economic Policies Toward Less Developed Countries (Washington: Brookings Institution, 1967), pp. 223-36. 8. William R. Cline, International Monetary Reform and the Developing Countries (Wash- ington: Brookings Institution, 1976), p. 91. 9. North-South, a Programme for Survival: Report of the Independent Commission on International Development Issues (Cambridge, Massachusetts: MIT Press, 1980). Willy Brandt was Chairman of the Commission. 10. Group of Twenty-Four, "The Functioning and Improvement of the International Monetary System: Report of the Deputies of the Group of Twenty-Four," August 1985, reproduced in International Monetary Fund, IMF Survey, Supplement on the Fund, Vol. 14 (September 1985). 11. The proportions were 6.4 percent in 1972 and 5.9 percent in 1981. Figures for international reserves (with gold valued at $35 an ounce) derived from International Monetary Fund, International Financial Statistics. 12. IMF CF, Witteveen in C-20 January 17-18, 1974 meetings. 658 INTERNATIONAL MONETARY COOPERATION

13. WES 23:25, December 6, 1974 statement of Sam Y. Cross. See also IMF CF, C/US/820, March 11, 1974, William B. Dale memorandum: Discussion with Secretary Shultz. ME B12533, November 29, 1974, Position commune sur les problemes monetaires internationaux. 14. IMF CF, C-20 January 17-18, 1974 meetings. 15. Tinbergen, Reshaping, p. 200. 16. For an exploration of this way of looking at the Fund's activity, see Peter B. Kenen, Financing, Adjustment and the International Monetary Fund (Washington: Brookings Institution, 1986), pp. 2-7. 17. de Vries, International Monetary Fund 1972-1978, Vol. 1, p. 322. 18. IMF CF, C/US/820, July 31, 1974, Witteveen memorandum: Notes on Discussions with New York Bankers, July 25, 1974. 19. International Monetary Fund, Annual Report, 1974 (Washington: International Monetary Fund, 1974), p. 26; see also International Monetary Fund, Annual Report, 1975, p. 19. 20. International Monetary Fund, Annual Report, 1976, pp. 20, 22. 21. H. Johannes Witteveen, "The IMF and the International Banking Community," address to the Financial Times Conference, New York, April 29, 1976. Reproduced in International Monetary Fund, IMF Survey, May 3, 1976, p. 139. 22. IMF CF, G142.42, Interim Committee meeting, October 2, 1976. 23. GRF, Burns papers B72, IMF Witteveen facility, Ted Truman, November 2, 1977, background material for Witteveen luncheon. 24. International Monetary Fund, Summary Proceedings, 1976 (Washington: Interna- tional Monetary Fund, 1976), pp. 16-17. 25. GRF, Burns papers, B3, B15 1976-78, October 27, 1977, Lamfalussy cable to Burns. 26. Edmar Lisboa Bacha and Carlos F. Diaz-Alejandro, "Tropical Reflections on the History and Theory of International Financial Markets," in For Good or Evil: Economic Theory and North-South Negotiations, ed. by Gerald K. Helleiner (Toronto: University of Toronto Press, 1982), p. 140. 27. IMF CF, G142.42, Interim Committee, October 2, 1976. 28. IMF CF, G142.42, Interim Committee, September 24, 1977. 29. IMF calculations; see also Table 9-1. 30. IMF, EBM/79/106-107, July 6, 1979; EBM/79/121, July 23, 1979. 31. H. Johannes Witteveen, "Financing the LDCs: The Role of Public and Private Institutions," address to the 1978 Euromarkets conference, London, May 8, 1978. Repro- duced in International Monetary Fund, IMF Survey, May 22, 1978, p. 146. 32. Masanao Matsunaga (Japanese Executive Director), cited in de Vries, International Monetary Fund 1972-1978, Vol. 1, p. 505. 33. "Guidelines on Conditionally," Decision No. 6056-(79/38), March 2, 1979, Se- lected Decisions and Selected Documents of the International Monetary Fund, Nineteenth Issue (Washington: International Monetary Fund, 1994), pp. 85-89. 34. United States, Department of the Treasury, United States Participation in the Multilat- eral Development Banks in the 1980s (Washington: U.S. Government Printing Office, February 1982), p. 41. Notes to Chapter 11 659

35. World Bank, Country Economics Department, Adjustment Lending: An Evaluation of Ten Years of Experience (Washington: World Bank, 1988), especially pp. 10-16. 36. Tony Killick, "Kenya, the IMF, and the Unsuccessful Quest for Stabilization," in IMF Conditionally, ed. by John Williamson (Washington: Institute for International Economics, 1983), p. 386. See also Sidney Dell, On Being Grandmotherly: The Evolution of IMF Conditionality, Essays in International Finance No. 144 (Princeton, New Jersey: Princeton University Press, 1981). 37. IMF CF, C/Mexico/420.3, January 22, 1980, Article IV Consultation Report. 38. For instance, Gerald M. Meier, Problems of a World Monetary Order (New York: Oxford University Press, 1982), pp. 159-74. 39. United Nations General Assembly, 32nd Session, 15th Plenary Meeting, Septem- ber 30, 1977, Official Records of the General Assembly, Vol. 1 (New York: United Nations, 1978), p. 260. 40. Darrell E. Levi, Michael Manley: The Making of a Leader (London: Andre Deutsch, 1989), pp. 184-86. Michael Kaufman, Jamaica Under Manley: Dilemmas of Socialism and Democracy (London: Zed Books, 1985), pp. 132-37. 41. IMF CF, C/Jamaica/150.1, November 22, 1978, E. Walter Robichek memorandum. 42. IMF CF, C/Jamaica/810, February 15, 1980, de Larosiere to Manley. 43. Keesing's Contemporary Archives, Vol. 27 (1981), p. 30751. 44- IMF CF, C/Jamaica/810, April 18, 1980, O. Albertelli memorandum: Jamaica- Role of the Fund in Recent Stabilization Efforts. 45. IMF CF, C/India/820, July 28, 1981, meeting of Managing Director with Indian officials. 46. IMF CF, C/India/810, July 27, 1981, P.R. Narvekar memorandum. 47. United States, Department of the Treasury, United States Participation, especially pp. 58-65. 48. Catherine Gwin, "Financing India's Structural Adjustment: The Role of the Fund," in IMF Conditionality, Williamson, ed., pp. 527-28. IMF CF, C/India/810, April 25, 1983, Tun Thin memorandum: India: Discussions for the 1983/84 Program Under the EFF. 49. See M. Narasimham, World Economic Environment and Prospects for India (New Delhi: Sterling Publishers, 1988), pp. 77-79. 50. IMF CF, C/Turkey/810, August 9, 1978, Tune Bilget memorandum. 51. Anne O. Krueger, Political Economy of Policy Reform in Developing Countries (Cam- bridge, Massachusetts: MIT Press, 1993), p. 118. Anne O. Krueger and liter Turan, "The Politics and Economics of Turkish Policy Reforms in the 1980s," in Political and Economic Interactions in Economic Policy Reform: Evidence from Eight Countries, ed. by Robert H. Bates and Anne O. Krueger (Oxford: Basil Blackwell, 1993), pp. 347, 352-53. 52. IMF CF, C/Turkey/810, April 4, 1980, de Larosiere pencil note. 53. See John Waterbury, "The Political Context of Public Sector Reform and Privatiza- tion in Egypt, India, Mexico, and Turkey," in The Political Economy of Public Sector Reform and Privatization, ed. by Ezra N. Suleiman and John Waterbury (Boulder, Colorado: Westview Press, 1990), pp. 293-318. 54. International Monetary Fund, International Financial Statistics. See also Interna- tional Monetary Fund, World Economic Outlook, May 1983: A Survey by the Staff of the 660 INTERNATIONAL MONETARY COOPERATION

International Monetary Fund, IMF Occasional Paper No. 21 (Washington: International Monetary Fund), p. 103. 55. See Jeffrey D. Sachs, "Introduction," in Developing Country Debt and the World Economy, ed. by Jeffrey D. Sachs (Chicago: University of Chicago Press, 1989), p. 22. 56. International Monetary Fund, Annual Report, 1983, p. 56. 57. IMF CF, S1230, IMF Research Department, May 11, 1982, The Size of the Fund in the 1980s. 58. International Monetary Fund, Annual Report, 1978, p. 140. 59. International Monetary Fund, Annual Report, 1980, p. 3. 60. Dell, On Being Grandmotherly, pp. 24-25. 61. de Vries, International Monetary Fund 1972-1978, Vol. 1, pp. 545-46. 62. International Monetary Fund, Annual Report, 1981, pp. 89-90. 63. Approved by IMF Executive Board on February 24, 1983; see EBM/83/37. 64. For instance, Richard N. Cooper, "The Evolution of the International Monetary Fund Toward a World Central Bank," in Cooper, The International Monetary System: Essays in World Economics (Cambridge, Massachusetts: MIT Press, 1987), pp. 251-52. (Originally published in 1983.) 65. International Monetary Fund, World Economic Outlook, April 1985 (Washington: International Monetary Fund, 1985), p. 3.

Chapter 12. The Debt Crisis

1. Jesus Silva Herzog, "The Costs for Latin America's Development," in Latin America s Debt Crisis: Adjusting to the Past or Planning for the Future? ed. by Robert A. Pastor (Boulder, Colorado: Lynne Rienner, 1987), p. 33. 2. International Monetary Fund, Annual Report, 1982 (Washington: International Monetary Fund, 1982), pp. 4, 39. 3. Karin Lissakers, Banks, Borrowers, and the Establishment: A Revisionist Account of the International Debt Crisis (New York: Basic Books, 1991), p. 105. 4. International Monetary Fund, World Economic Outlook, May 1983: A Survey by the Staff of the International Monetary Fund, IMF Occasional Paper No. 21 (Washington: International Monetary Fund, 1983), p. 65. 5. Jeffrey D. Sachs, "The Current Account and Macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, 1981(1), p. 243. 6. See, for instance, S.C. Gwynne, SellingMoney (New York: Weidenfeld & Nicolson, 1986). Raul L. Madrid, Overexposed: US. Banks Confront the Third World Debt Crisis (Washington: Investor Responsibility Research Center, 1990). 7. IMF RD, August 18, 1982, David Finch memorandum. 8. Madrid, Overexposed, pp. 70-71. 9. David F. Lomax, The Developing Country Debt Crisis (New York: St. Martin's Press, 1986), pp. 60-64. Madrid, Overexposed, pp. 64-68. Notes to Chapter 12 661

10. Madrid, Overexposed, p. 46. 11. Jack M. Guttentag and Richard J. Herring, Disaster Myopia in International Banking, Princeton Essays in International Finance No. 164 (Princeton, New Jersey: Princeton University Press, 1986), p. 10. 12. Morris Goldstein, David Folkerts-Landau, Mohamed El-Erian, Steven Fries, and Liliana Rojas-Suarez, International Capital Markets: Developments, Prospects, and Policy Issues, World Economic and Financial Surveys (Washington: International Monetary Fund, 1992), p. 3. Morris Goldstein and others, International Capital Markets, Part II, Systemic Issues in International Finance, World Economic and Financial Surveys (Washing- ton: International Monetary Fund, 1993), p. 17. 13. Irving S. Friedman, "Evaluation of Risk in International Lending: A Lender's Perspective," in Federal Reserve Bank of Boston, Key Issues in International Banking (Boston: Federal Reserve Bank of Boston, 1977), pp. 121, 124. Rudiger Dornbusch, "Discussion," in Federal Reserve Bank of Boston, Key Issues, p. 132. 14. International Monetary Fund, World Economic Outlook, April 1985: A Survey by the Staff of the International Monetary Fund (Washington: International Monetary Fund, 1985), pp. 120-21. 15. Mario Henrique Simonsen, "The Developing-Country Debt Problem," in Interna- tional Debt and the Developing Countries, ed. by Gordon W. Smith and John T. Cuddington (Washington: World Bank, 1985), p. 101. 16. International Monetary Fund, World Economic Outlook, May 1983, p. 69. 17. International Monetary Fund, International Financial Statistics Yearbook, 1994, p. 127. 18. International Monetary Fund, World Economic Outlook, May 1983, p. 69. 19. International Monetary Fund, International Financial Statistics Yearbook, 1994, pp. 166-69. 20. International Monetary Fund, Annual Report, 1980, p. 78; Annual Report, 1983, p. 91; World Economic Outlook, April 1986, Supplementary Note 3, pp. 139-47. 21. Tim Congdon, The Debt Threat: The Dangers of High Real Interest Rates for the World Economy (Oxford: Basil Blackwell, 1988), pp. 134-36. 22. World Bank, World Development Report 1985 (New York: Oxford University Press, 1985), p. 64. Congdon, Debt Threat, p. 124. World Bank, World Debt Tables, 1989-90, Vol. 1, p. 33. The survey by Robert Cumby and Richard Levich, "Definitions and Magnitudes: On the Definition and Magnitude of Recent Capital Flight," in Capital Flight and Third World Debt, ed. by Donald R. Lessard and John Williamson (Washington: Institute for International Economics, 1987), pp. 52-63, provides a compilation of estimates, including those of John T. Cuddington and William R. Cline, presenting somewhat lower figures than the World Bank estimates. 23. George Shultz, "Beyond the Debt Problem: The Path to Prosperity in Latin America," Address to the Organization of American States, December 2, 1985, in U.S. Department of State, Bulletin (February 1986), pp. 32-36. 24- Lissakers, Banks, Borrowers, p. 92. 25. See Chandra S. Hardy, ReschedulingDeveloping-Country Debts, 1956-1981: Lessons and Recommendations (Washington: Overseas Development Council, 1982), pp. 35-39. 662 INTERNATIONAL MONETARY COOPERATION

26. Friedman, "Evaluation of Risk," p. 119. 27. Rimmer de Vries, "The Limited Role of the IMF," Morgan Guaranty Trust Com- pany, World Financial Markets, April 1982, pp. 10-11. 28. GRF, Burns papers B72, January 23, 1978, Jay Brenneman memorandum. 29. "Polish Debt Problem Looms for Banks; Lending Margins Compressed in Asia," Wall Street Journal March 11, 1981, p. 30. 30. IMF CF, C/Hungary/810, December 17, 1981, Report of P. de Fontenay. 31. Bank for International Settlements, Fifty-Third Annual Report 1982/83 (Basle: Bank for International Setlements, 1983), pp. 164-65. 32. Bank for International Settlements, Committee on Banking Regulations and Super- visory Practices, Management of Banks' International Lending: Country Risk Analysis and Country Exposure Measurement and Control (Basle: Bank for International Settlements, March 1982). 33. Guttentag and Herring, Disaster Myopia, p. 15. E. Brau, R.C. Williams, P.M. Keller, and M. Nowak, Recent Multilateral Debt Restructurings with Official and Bank Creditors, IMF Occasional Paper No. 25 (Washington: International Monetary Fund, 1983), p. 5. 34. Carlos Bazdresch and Santiago Levy, "Populism and Economic Policy in Mexico 1970-1982," in The Macroeconomics of Populism in Latin America, ed. by Rudiger Dornbusch and Sebastian Edwards (Chicago: University of Chicago Press, 1991), p. 249. 35. IMF CF, C/Mexico/820.3, June 25, 1982, Article IV Consultation Report. 36. "Loan Signed for Mexico Totaling $2.5 Billion," Wall Street Journal, July 2, 1982, p. 17. "Loan to Mexico of $2.5 Billion Seems Delayed," Wall Street Journal, June 14, 1982, p. 25. "French Raise 12-Year Credit," Financial Times, June 14, 1982, p. 21. 37. IMF RD, AN 87/19, Box 2, Section 94, July 12, 1982, memorandum for the files. 38. Joseph Kraft, The Mexican Rescue (New York: Group of Thirty, 1984), pp. 4-5, 12. 39. IMF RD, G-5 Group Surveillance file, August 12, 1982, memorandum on Au- gust 10, 1982 meeting in U.S. Treasury. 40. Donald T. Regan, For the Record: From Wall Street to Washington (New York: Harcourt Brace Jovanovich, 1988), p. 209. 41. Interview with author. Paul A. Volcker and Toyoo Gyohten, Changing Fortunes: The World's Money and the Threat to American Leadership (New York: Times Books, 1992), p. 200. 42. IMF RD, AN 87/19, Box 2, Section 94, August 23,1982, M. Guitian memorandum: Mexico—Meeting with Creditor Banks at the Federal Reserve Bank of New York. 43. Kraft, Mexican Rescue, p. 39. 44. World Bank, World Debt Tables, 1991-92, Vol. 1, p. 44. 45. IMF RD, AN 85/231, Box 9, Section 177, Irwin D. Sandberg memorandum: Meeting between IMF and Commercial Bankers Regarding Mexico and Argentina, No- vember 18, 1982. 46. "Volcker Offers Plan to Reduce Debt Strain on Developing Nations, Cut Default Risk," Wall Street Journal, November 17, 1982, p. 2. 47. Madrid, Overexposed, pp. 98-99. Notes to Chapter 12 663

48. IMF RD, AN 88/274, Box 5, Section 269, November 22, 1982, de Larosiere handwritten notes on London meeting. 49. International Monetary Fund, World Economic Outlook, April 1984, pp. 56-57. Nora Lustig, Mexico, The Remaking of an Economy (Washington: Brookings Institution, 1992), p. 35. 50. International Monetary Fund, International Financial Statistics Yearbook, 1994, pp. 169, 153. 51. The critical report of The Washington Post ("IMF Cuts Off Lending to Mexico," September 20, 1985, p. El) appeared on the same day as the news of the earthquake in Mexico City. Also IMF CF, C/Mexico/810, September 17, 1985, J.P. Pujol memorandum. 52. Philippe Szymczak, "International Trade and Investment Liberalization: Mexico's Experience and Prospects," in Mexico: The Strategy to Achieve Sustained Economic Growth, ed. by Claudio Loser and Eliot Kalter, IMF Occasional Paper No. 99 (Washington: International Monetary Fund, 1992), pp. 28-31. 53. Quoted in Rudiger Dornbusch, "Mexico: Stabilization, Debt and Growth," Eco- nomic Policy, No. 7 (October 1988), p. 233. 54. Rudiger Dornbusch, "Overborrowing: Three Case Studies," in Dollars, Debts and Deficits (Cambridge, Massachusetts: MIT Press, 1986, and Leuven, Belgium: Leuven University Press, 1986), pp. 118-20. 55. IMF CF, C/Argentina/1760, January 7, 1983, letter of intent signed by Julio Gonzalez del Solar and Jorge Wehbe. 56. For instance, Rudiger Dornbusch, "The World Debt Problem: 1980-84 and Be- yond," in Dollars, Debts and Deficits, pp. 131-50. 57. IMF CF, C/Argentina/1760, July 22, 1985, letter of intent to Managing Director of IMF, signed by Juan Vital Sourrouille and J.J. Alfredo Concepcion. 58. IMF CF, C/Argentina/810, March 6, 1986, briefing paper. 59. "Argentina Skirts IMF with Reform Plan as Fund's Director Quarrels with U.S.," Wall Street Journal, September 26, 1988, p. 3. 60. Raul Alfonsin address to the Americas Society, New York, May 31, 1988 (IMF CF, C/Argentina/150.1). 61. William R. Cline, "Comment," in Latin American Adjustment: How Much Has Happened? ed. by John Williamson (Washington: Institute for International Economics, 1990), pp. 169-70. Roberto Cortes Conde, "Growth and Stagnation in Argentina," in Towards a Development Strategy for Latin America: Pathways from Hirschmans Thought, ed. by Simon Teitel (Washington: Inter-American Development Bank, 1992), especially pp. 344-45. 62. Roque B. Fernandez, "What Have Populists Learned from Hyperinflation?" in The Macroeconomics of Populism in Latin America, Dornbusch and Edwards, eds., pp. 121-44. 63. World Bank, World Debt Tables, 1985-86, pp. 274, 326. 64. Between 1982 and 1988, U.S. money center banks increased their exposure to the eight largest debtor countries by 12 percent, while small regional banks succeeded in reducing theirs by 65 percent. See Michel H. Bouchet and Jonathan Hay, "The Rise of the Market-Based 'Menu' Approach and Its Limitations," in Dealing with the Debt Crisis, ed. by Ishrat Husain and Ishac Diwan (Washington: World Bank, 1991), pp. 146-59. 664 INTERNATIONAL MONETARY COOPERATION

65. IMF CF, EBM/83/36, February 23, 1983. 66. "Brazil Releases List of Banks Cutting Deposits," Wall Street Journal, February 24, 1983, p. 32. 67. IMF CF, C/Brazil/150.1, February 7, 1986, de Larosiere cable to William Rhodes. 68. IMF CF, C/Brazil/150.1, July 25, 1986, Statement of Fernao C.B. Bracher. 69. IMF CF, C/Brazil/150.1, February 20, 1987, Federative Republic of Brazil to the International Financial Community. "Brazil to Suspend Interest Payment to Foreign Banks," New York Times, February 21, 1987, p. 1. "Brazil Debt Action Poses Challenge for Major Banks," Wall Street Journal, February 23, 1987, p. 3. 70. IMF CF, C/Brazil/150.1, May 3, 1988, Camdessus cable. 71. World Bank, World Debt Tables, 1985-86, figure for gross external liabilities, pp. 214, 254. 72. See IMF CF, C/Philippines/1760, EBM/84/184, December 14, 1984. 73. Details from Staff Report for 1986 Article IV consultation, IMF CF, C/Bolivia/ 1760, November 26, 1986, EBS/86/263. 74. Jacques de Larosiere, "A Great Deal Was at Stake," Financial Times, July 30, 1992, p. 5. 75. Reuters News Report, February 1, 1983. 76. IMF RD, 85/231, Box 11, Section 177, April 13, 1983, A. Guetta cable (Paris) to IMF Washington. 77. Jacques Attali, Verbatim, Vol. 1, Chronique des annees 1981-1986 (Paris: Fayard, 1993), pp. 449, 768. 78. International Monetary Fund, World Economic Outlook, April 1985, p. 51. 79. James W. Wilkie, ed., Statistical Abstract of Latin America, Vol. 29, Part 1 (Los Angeles: UCLA Latin American Center Publications, University of California, 1992), pp. 396, 406. 80. "Sen. Bradley Warns Industrial Nations of 'Debtors' Cartel,'" Wall Street Journal, February 2, 1983, p. 12. "Banks' Bid for Aid Stirs Old, Deep Resentments," New York Times, February 10, 1983, p. Dl. "The Debt Cartel," Financial World, March 15, 1983, p. 34. 81. Allan H. Meltzer, "A Way to Defuse the World Debt Bomb," Fortune, Novem- ber 28, 1983, p. 127. "Foreign Debt Difficulties Prompt Proposals for Drastic Restructur- ing," Wall Street Journal, February 8, 1983, p. 35 (Peter Kenen). See also Peter B. Kenen, "Organizing Debt Relief: The Need for a New Institution," Journal of Economic Perspectives, Vol. 4 (Winter 1990), pp. 7-18. "The International Debt Threat: A Concerted Way Out," Economist, July 9, 1983, p. 14 (Harold Lever). 82. See James M. Boughton, "The IMF and the Latin American Debt Crisis: Seven Common Criticisms," IMF Paper on Policy Analysis and Assessment No. 94/23 (Washing- ton: International Monetary Fund, October 1994). Michael P. Dooley, "An Analysis of the Debt Crisis," IMF Working Paper No. 86/14 (Washington: International Monetary Fund, December 1986). 83. See Arjun Sengupta, "Allocation of SDRs Linked to Reserve Needs," Finance & Development, Vol. 23 (September 1986), pp. 18-21. 84. Michel Camdessus, remarks before Institute of International Finance, Washington, May 22, 1987. Notes to Chapter 12 665

85. Lomax, Developing Country Debt Crisis, p. 264- Congdon, Debt Threat, p. 150. Simonsen, "Developing-Country Debt Problem," p. 102. 86. William R. Cline, "International Debt: Analysis, Experience and Prospects," Journal of Development Planning, No. 16 (1985), p. 27. 87. Hugh O'Shaughnessy, "Latin America Calls for Financial and Trade Concessions," Financial Times, June 25, 1984, p. 1. 88. Attali, Verbatim, Vol. 1, p. 694. 89. IMF CF, G-24, September 29, 1979, "Outline for a Program of Action on Interna- tional Monetary Reform," reproduced in International Monetary Fund, IMF Survey, October 15, 1979, pp. 319-23. 90. G-24, August 1985, "The Functioning and Improvement of the International Monetary System," reproduced in Andrew Crockett and Morris Goldstein, Strengthening the internationalMonetary System: Exchange Rates, Surveillance, and Objective Indicators, IMF Occasional Paper No. 50 (Washington: International Monetary Fund, 1987), pp. 60-79. 91. International Monetary Fund, World Economic Outlook, April 1985, p. 6. 92. IMF CF, C/Brazil/150.1, March 1984 letter of Wilfried Guth (Deutsche Bank). 93. Remarks of de Larosiere to International Monetary Conference, Philadelphia, June 4, 1984. 94. Summit declaration, June 7-9, 1984, U.S. Department of State, Bulletin, Vol. 84 (August 1984), p. 3. 95. Lomax, Developing Country Debt Crisis, pp. 120 ff. 96. Keesings Contemporary Archives, Vol. 30 (1984), p. 33071. 97. A limited rescheduling of official debt had taken place in June 1983. See K. Burke Dillon, C. Maxwell Watson, G. Russell Kincaid, and Chanpen Puckahtikom, Recent Developments in External Debt Restructuring, IMF Occasional Paper No. 40 (Washington: International Monetary Fund, 1985), p. 8. 98. Eleven MYRAs in all were concluded. 99. Rudiger Dornbusch, "The World Debt Problem," p. 147. Harold Lever and Christo- pher Huhne, Debt and Danger: The World Financial Crisis (Harmondsworth, England: Penguin, 1985), p. 83. 100. "U.S. Proposals on International Debt Crisis," Hearing Before the Committee on Banking, Finance and Urban Affairs, House of Representatives, 99th Congress, 1st Session, October 22, 1985, Serial No. 99-39 (Washington: U.S. Government Printing Office, 1986). 101. IMF RD, AN 88/274, Box 8, Section 269, Managing Director's Meeting with Bankers (January 6, 1986). 102. David C. Mulford, "The View of the Reagan Administration: Toward Stronger World Growth," in Pastor, ed., Latin America's Debt Crisis, p. 82. 103. See Andre Szasz, Monetaire Diplomatic: Nederlands Internationale Monetaire Politiek (Leiden: H.E. Stenfort Krose, 1988), pp. 225-29. 104. Later Assistant Secretary Mulford tried to counter this impression. In February 1986 he stated that: "I would underscore at the outset that the IMF must continue to play its very important role in the overall debt strategy." Statement before the Orion Royal Bank Conference, London, February 4, 1986: U.S. Department of the Treasury, Treasury News. 666 INTERNATIONAL MONETARY COOPERATION

105. World Bank, World Debt Tables, 1989-90; World Debt Tables, 1992-93, Vol. 1, pp. 160, 192-93. 106. IMF RD, AN 88/274, Box 8, Section 269, Managing Director's Meeting with Bankers (January 6, 1986). 107. Rudiger Dornbusch, "Secretary Baker Hits the Campaign Trail," New York Times, October 7, 1987, p. A31. 108. IMF, Interim Committee, April 9, 1987, Informal Session. 109. World Bank, World Debt Tables, 1988-89, Vol. 1, p. xi. 110. International Monetary Fund, World Economic Outlook, October 1988: A Survey by the Staff of the International Monetary Fund, World Economic and Financial Surveys (Washington: International Monetary Fund, 1988), p. 41. 111. International Monetary Fund, Annual Report, 1990, p. 32. 112. Lissakers, Banks, Borrowers, p. 237. 113. "Peru's New Chief to Limit Payments on Foreign Debt," New York Times, July 29, 1985, p. 1. 114. BBC, English language transcript (dated July 30, 1985) of July 28, 1985 address. 115. Quoted in Lissakers, Bankers, Borrowers, p. 202. 116. Alfred Herrhausen, "Zeit ist Geld," Die Zeit, September 16, 1988, pp. 35-36. 117. IMF CF, C/Argentina/150.1, December 18, 1989, Deutsche Bank to Managing Director of IMF. 118. "Japan to Play Leading Role over Debt Burdens," Financial Times, September 15, 1987, p. 1. "Japan as a Suitable Leader," Financial Times, World Economy, Septem- ber 28, 1987, p. 2. Nihon Keizai Shimbun, Japan Economic Journal, October 10, 1987. 119. Financial Times, April 19, 1994, p. 3, quoting a member of the bank-owned Institute of International Finance, Washington, on the Brazilian deal that "signals a shift in the importance attached by the markets to the Bretton Woods institutions." 120. Pedro Aspe Armella, "The Renegotiation o( Mexico's External Debt," Institute of Development Studies, IDS Bulletin, Vol. 20, No. 2 (1990), pp. 22-26. 121. See Jeremy Bulow and Kenneth Rogoff, "The Buyback Boondoggle," Brookings Papers on Economic Activity, 1988(2), pp. 675-704. Jeffrey Sachs, "Efficient Debt Reduc- tion," in Husain and Diwan, eds., Dealing with the Debt Crisis, pp. 239-57. 122. Goldstein and others, International Capital Markets, 1992, pp. 42-43. 123. Goldstein and others, International Capital Markets, 1992, p. 40. 124. World Bank, World Debt Tables, 1991-92, Vol. 1, p. 44. 125. Address to Economic Club of Chicago, December 15,1983, reproduced in Interna- tional Monetary Fund, IMF Survey, January 9, 1984, pp. 2-6. 126. Stijn Claessens and Sudarshan Gooptu, "Can Developing Countries Keep Foreign Capital Flowing In?" Finance & Development, Vol. 31 (September 1994), pp. 62-65. 127. Rudiger Dornbusch, "Debt Problems and the World Macroeconomy," in Devel- oping Country Debt and Economic Performance, Vol. 1, The International Financial System, ed. by Jeffrey D. Sachs (Chicago: University o{ Chicago Press, 1989), p. 353. World Bank, World Development Report 1991 (New York: Oxford University Press, 1991), p. 123. 128. "Return of a Deal-Maker," Financial Times, June 18, 1993, p. 10. 129. See Benjamin J. Cohen, In Whose Interest? International Banking and American Foreign Policy (New Haven, Connecticut: Yale University Press, 1986). Joseph Jude Notes to Chapter 13 667

Norton, "Capital Adequacy Standards: A Legitimate Regulatory Concern for Prudential Supervision of Banking Activities?" Ohio State Law Journal Vol. 49 (1989), p. 1325. Daniel Granirer, "A Modern Great Power Concert: New York, Tokyo, and the Political Economy of International Financial Regulatory Cooperation," Princeton University, doctoral dissertation, 1994. Goldstein and others, International Capital Markets, 1992, pp. 10-15. 130. For instance, E. Gerald Corrigan, "Challenges Facing the International Commu- nity of Bank Supervisers," Quarterly Review, Federal Reserve Bank of New York, Vol. 17, No. 3 (1992), pp. 1-9. 131. Goldstein and others, International Capital Markets, Part II (1993). The survey notes that "Some of the recent products may not be well understood either by senior management of banks or by supervisers of securities firms" (p. 28).

Chapter 13. Consensus in Cooperation and Its Fragility

1. See Michael Mussa, "Nominal Exchange Rate Regimes and the Behavior of Real Exchange Rates: Evidence and Implications," Carnegie-Rochester Conference Series on Public Policy, Vol. 25 (1986), pp. 117-213. C. Fred Bergsten, "Economic Imbalances and World Politics," Foreign Affairs, Vol. 65, No. 4 (Spring 1987), pp. 770-94. 2. International Monetary Fund, Annual Report, 1982 (Washington: International Monetary Fund, 1982), p. 45. 3. Henry Kissinger, "International Economics and World Order" (September 24,1984) in Observations: Selected Speeches and Essays 1982-1984 (Boston: Little, Brown, 1985), pp. 224-25. 4. David A. Stockman, The Triumph of Politics: How the Reagan Revolution Failed (New York: Harper & Row, 1986), p. 274. 5. Stockman, Triumph, p. 271. 6. International Monetary Fund, International Financial Statistics Yearbook, 1994, p. 743. I.M. Destler and C. Randall Henning, Dollar Politics: Exchange Rate Policymaking in the United States (Washington: Institute for International Economics, 1989), p. 18. 7. September 14, 1981 discussions in IMF CF, EBM/81/125 and EBM/81/126. 8. See Michael J. Artis, "How Accurate Is the World Economic Outlook? A Post Mortem on Short-Term Forecasting at the International Monetary Fund," Staff Studies for the World Economic Outlook (Washington: International Monetary Fund, 1988), pp. 30, 40. 9. IMF CF, SM/81/157, July 14, 1981, Staff Report for Article IV Consultations. 10. IMF CF, C/US/420.3, EBM/81/109, July 31, 1981. 11. IMF CF, C/US/420.3, EBM/81/110, July 31, 1981. 12. IMF CF, August 20, 1982, World Economic Outlook discussion in EBM/82/114. 13. IMF CF, C/US/820, June 29, 1982, S.T. Beza memorandum: U.S. Article IV Consultations. 668 INTERNATIONAL MONETARY COOPERATION

14. International Monetary Fund, World Economic Outlook, May 1983: A Survey by the Staff of the International Monetary Fund, IMF Occasional Paper No. 21 (Washington: International Monetary Fund, 1983), p. 80. 15. International Monetary Fund, World Economic Outlook, April 1984: A Survey by the Staff of the International Monetary Fund, IMF Occasional Paper No. 27 (Washington: International Monetary Fund, 1984), p. 96. 16. Donald T. Regan, For the Record: From Wall Street to Washington (New York: Harcourt Brace Jovanovich, 1988), p. 171. 17. International Monetary Fund, World Economic Outlook, April 1982: A Survey by the Staff of the International Monetary Fund, IMF Occasional Paper No. 9 (Washington: International Monetary fund, 1982), p. 11. 18. Testimony to Joint Economic Committee, May 4, 1981, cited in B. Dianne Pauls, "U.S. Exchange Rate Policy: Bretton Woods to Present," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, Vol. 76, No. 11 (November 1990), p. 904. 19. IMF CF, C/US/820, June 29, 1982, ST. Beza memorandum: U.S. Article IV Consultations. 20. Pauls, "U.S. Exchange Rate Policy," p. 900. 21. IMF CF, S375, SM/85/318, December 2, 1985 staff note. 22. See Stephen Marris, Deficits and the Dollar: The World Economy at Risk (Washington: Institute for International Economics, 1985; rev. ed., 1987). 23. Robert D. Putnam and Nicholas Bayne, Hanging Together: The Seven-Power Summits (Cambridge, Massachusetts: Harvard University Press, 1984), p. 156. 24. Jacques Attali, Verbatim, Vol. 1, Chronique des annees 1981-1986 (Paris: Fayard, 1993), p. 61. 25. See Martin Feldstein, "American Economic Policy and the World Economy," Foreign Affairs, Vol. 63, No. 5 (Summer 1985), pp. 995-1008. 26. Calculated from International Monetary Fund, International Financial Statistics Year- book, 1990, p. 171. 27. International Monetary Fund, World Economic Outlook, April 1982, p. 34, and World Economic Outlook, April 1985, p. 173. 28. International Monetary Fund, Annual Report, 1981, pp. 59-60. 29. See Henry R. Nau, The Myth of America's Decline: Leading the World Economy into the 1990s (New York: Oxford University Press, 1990), pp. 213-16. 30. Putnam and Bayne, Hanging Together, pp. 160-61. 31. See James M. Boughton, "France and the IMF in the Floating-Rate Era: What Role for Surveillance?" paper prepared for a conference on France and the Bretton Woods Institutions 1944-1994, Paris, 1994; forthcoming under the title "La France, le FMI et le regime des taux de change flottants: Quel role donner a la surveillance?" in La France et les Institutions de Bretton Woods, 1944-94 (Paris: CEPII, 1995). 32. Jean-Noel Jeanneney, Lecon d'histoire pour une gauche au pouvoir: Lafaillite du Cartel 1924-1926 (Paris: Editions Seuil, 1977). 33. Attali, Verbatim, Vol. 1, pp. 61, 239. 34. Ibid., p. 62. 35. IMF RD, G-5 surveillance, March 15, 1983, P. de Fontenay memorandum. Notes to Chapter 13 669

36. Keesings Contemporary Archives, Vol. 28 (1982), p. 31638. 37. IMF RD, July 21, 1982 memorandum: G-5/G-7 surveillance. 38. Keesings Contemporary Archives, Vol. 28 (1982), p. 31638. 39. "Everyone Has Their Way," Financial Times, June 8, 1982, p. 19. 40. Attali, Verbatim, Vol. 1, p. 242. "Finance Chiefs Agree to Try to Align National Policies," New York Times, June 6, 1982, p. 16. "Differing Views Offered of Intervention Agreement," Financial Times, June 7, 1982, p. 2. 41. Pierre Favier and Michel Martin-Roland, La Decennie Mitterrand, Vol. 1, Les ruptures (1981-1984) (Paris: Editions Seuil, 1990), p. 419. 42. Donald T. Regan, "The Versailles Summit and the World Economy," Wall Street Journal, June 15, 1982, p. 26. 43. Kyodo New Service, November 8, 1973. 44. Quoted in Nau, Myth, pp. 234-35. 45. IMF CF, C/US/820, June 29, 1982, ST. Beza memorandum: U.S. Article IV Consultations. 46. IMF CF, S375, March 1983: Report of the Working Group on Exchange Market Intervention. 47. IMF CF, S375, April 29, 1983, G-5 ministerial statement. 48. International Monetary Fund, Annual Report, 1983, p. 53. 49. Paul A. Volcker and Toyoo Gyohten, Changing Fortunes: The World's Money and the Threat to American Leadership (New York: Times Books, 1992), p. 237. 50. Putnam and Bayne, Hanging Together, p. 184. 51. Volcker and Gyohten, Changing Fortunes, p. 238-39. 52. Ibid., p. 180. 53. Putnam and Bayne, Hanging Together, pp. 182-83. 54. For instance, the letter of 364 U.K. economists in the London Times, stating that "the time has come to reject monetarist policies and consider which alternative offers the best hope of sustained recovery." ("Monetarism Attacked by Top Economists," March 30, 1981). 55. Destler and Henning, Dollar Politics, p. 25. "Talking Business with Treasury Secre- tary Donald T. Regan," New York Times, March 29, 1983, p. D2. "Summit Focus Put on Growth," New York Times, May 25, 1983, p. Dl. 56. Attali, Verbatim, Vol. 1, p. 241. 57. Putnam and Bayne, Hanging Together, p. 173. 58. Putnam and Bayne, Hanging Together, p. 188. Volcker and Gyohten, Changing Fortunes, p. 185. 59. Keesings Contemporary Archives, Vol. 29 (1983), p. 32347. International Monetary Fund, IMF Survey, June 13, 1983, p. 171. 60. Organization for Economic Cooperation and Development, Why Economic Policies Change Course: Eleven Case Studies (Paris: Organization for Economic Cooperation and Development, 1988), pp. 56-64. Attali, Verbatim, Vol. 1, pp. 458, 332, 416, 771. 61. International Monetary Fund, World Economic Outlook, October 1992, p. 169. 62. Table 3.10: U.S. International Transactions, in Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, Vol. 72, No. 12 (December 1986) and Vol. 73, No. 6 (June 1987). 670 INTERNATIONAL MONETARY COOPERATION

63. See Robert Eisner, "The Twin Deficits," in Profits, Deficits and Instability, ed. by Dimitri B. Papadimitriou (New York: St. Martin's Press, 1992), pp. 255-67. 64. OECD figures from Edward M. Graham and Paul R. Krugman, "The Surge in Foreign Direct Investment in the 1980s," in Foreign Direct Investment, ed. by Kenneth A. Froot (Chicago: University of Chicago Press, 1993), p. 19. 65. IMF RD, G-5, September 2, 1983, Managing Director's telex to G-5 finance ministers; October 25, 1983, L.A. Whittome memorandum: Meeting with Mr. Tietmeyer. 66. Attali, Verbatim, Vol. 1, p. 647. 67. Interim Committee, verbatim transcript, April 12, 1984. 68. Attali, Verbatim, Vol. 1, p. 827. 69. Keesings Contemporary Archives, Vol. 30 (1984), p. 33071. International Monetary Fund, IMF Survey, June 18, 1984, p. 189. 70. G-10 Report to the Ministers and Governors by the Group of Deputies: "The Functioning of the International Monetary System," June 1985, reproduced in Andrew Crockett and Morris Goldstein, Strengthening the International Monetary System: Exchange Rates, Surveillance, and Objective Indicators, IMF Occasional Paper No. 50 (Washington: International Monetary Fund, 1987). 71. International Monetary Fund, Annual Report, 1985, p. 43. 72. Destler and Henning, Dollar Politics, pp. 33-36. 73. "Shultz Outlines Steps to Aid World Economy," New York Times, April 12, 1985, p. Dl. 74. Organization for Economic Cooperation and Development, OECD Economic Out- look, No. 37 (June 1985), p. xvii. Commission of the European Communities, Documents: Annual Economic Report 1984-85 (Communication from the Commission to the Council) COM(84) 587 final (Luxembourg: Office for Official Publications of the European Council, October 29, 1984), p. 57. 75. International Monetary Fund, World Economic Outlook, April 1985, pp. 17, 173. 76. October 1985 Interim Committee communique, reproduced in International Mon- etary Fund, Annual Report, 1986, pp. 106-109. 77. International Monetary Fund, World Economic Outlook, October 1985, p. 24. 78. International Monetary Fund, World Economic Outlook, April 1986, pp. 11-12, 78. 79. Bergsten, "Economic Imbalances," p. 772. 80. Volcker and Gyohten, Changing Fortunes, p. 243. 81. Nigel Lawson, The View from No. 11: Memoirs of a Tory Radical (London: Bantam, 1992), pp. 472-74. Attali, Verbatim, Vol. 1, p. 763. 82. Kathryn Dominguez and Jeffrey A. Frankel, Does Foreign Exchange Intervention Work? (Washington: Institute for International Economics, 1993), especially pp. 90, 96. Pauls, "U.S. Exchange Rate Policy," p. 905. Pietro Catte, Giampaulo Galli, and Salvatore Rebecchini, "Concerted Interventions and the Dollar: An Analysis of Daily Data," in The International Monetary System, ed. by Peter B. Kenen (Cambridge, England: Cambridge University Press, 1994), pp. 208-209. 83. Lawson, The View, p. 540. 84. IMF RD, G-5, November 13, 1985, L.A. Whittome memorandum. 85. Reuters Business News, September 23, 1985. 86. State of Union Address, February 4, 1986, Facts on File, February 7, 1986. 87. Volcker and Gyohten, Changing Fortunes, p. 245. Notes to Chapter 13 671

88. Yoichi Funabashi, Managing the Dollar: From the Plaza to the Louvre (Washington: Institute for International Economics, 2nd ed., 1989), p. 604. 89. The Report of the Advisory Group on Economic Structural Adjustment for International Harmony, submitted to Prime Minister, Mr. Yasuhiro Nakasone, on April 7, 1986. 90. Quoted in Yoichi Funabashi, Managing, p. 43. 91. Lawson, The View, p. 543. 92. International Monetary Fund, Annual Report, 1986, p. 38. 93. Lawson, The View, p. 547. 94. IMF RD, February 19, 1987, Managing Director Note: Economic Indicators and Policy Issues. 95. Lawson, The View, p. 547. 96. Funabashi, Managing, p. 135. 97. Karl Otto Pohl, "You Can't Robotize Policymaking," The International Economy, October/November 1987, pp. 20, 22. 98. The fullest description of the process, provided by a participant, is in Wendy Dobson, Economic Policy Coordination: Requiem or Prologue? (Washington: Institute for International Economics, 1991). 99. See Jose M. Barrionuevo, "Annex III: The Accuracy of World Economic Outlook Projections for Industrial and Developing Countries," in International Monetary Fund, World Economic Outlook, October 1992, pp. 77-81. 100. Funabashi, Managing, p. 149. 101. James A. Baker, speech to the Council on Foreign Relations, Paris, May 20, 1988, "Economic Policy Coordination and International Monetary Reforms." 102. Andrew D. Crockett, "The International Monetary Fund in the 1990s," Govern- ment and Opposition, Vol. 27, No. 3 (1992), p. 281. 103. IMF CF, C/US/820, May 9, 1986, E. Wiesner memorandum and comments by Managing Director. 104. Interviews. 105. International Monetary Fund, Summary Proceedings, 1986 (Washington: Interna- tional Monetary Fund, 1986), p. 120. 106. See Bergsten, "Economic Imbalances," pp. 789-93. 107. See John Williamson, The Exchange Rate System (Washington: Institute for Inter- national Economics, 1983; 2nd ed., 1985). Ronald I. McKinnon, An International Standard for Monetary Stabilization (Washington: Institute for International Economics, 1984). 108. John Williamson and Marcus H. Miller, Targets and Indicators: A Blueprint for the International Coordination of Economic Policy (Washington: Institute for International Economics, 1987), pp. 6-7. See also Peter B. Kenen, Managing Exchange Rates (London: Routledge, 1988). 109. Wolfgang Rieke, "The Development of the Deutschemark as a Reserve Currency," in Reserve Currencies in Transition (New York: Group of Thirty, 1982), pp. 16-23. 110. See David Williams, "The Evolution of the Sterling System," in Essays in Money and Banking in Honour ofR.S. Sayers, ed. by C.R. Whittlesey and J.S.G. Wilson (Oxford: Clarendon, 1968), pp. 266-97. 111. George S. Tavlas and Yuzuru Ozeki, The Internationalization of Currencies: An Appraisal of the Japanese Yen, IMF Occasional Paper No. 90 (Washington: International Monetary Fund, 1992), p. 11. 672 INTERNATIONAL MONETARY COOPERATION

112. George S. Tavlas, On the International Use of Currencies: The Case of the Deutsche Mark, Essays in International Finance No. 181 (Princeton, New Jersey: Princeton Univer- sity Press, 1991), pp. 30-31. 113. "The Battle Plans of Hilmar Kopper," Euromoney, January 1994, p. 32. 114. Attali, Verbatim, Vol. 1, p. 768. 115. Reuters North European News Service, October 31, 1986. 116. Edward J. Lincoln, Japan: Facing Economic Maturity (Washington: Brookings Institution, 1988), pp. 125-27. 117. International Monetary Fund, World Economic Outlook, April 1987, p. 1. 118. "Reports of Plan for Conference Boost the Dollar," Wall Street Journal, January 29, 1987, p. 39. 119. Attali, Verbatim, Vol. 1, pp. 445, 830. 120. Ibid., p. 830. 121. Lawson, The View, pp. 554-55. 122. Quoted in Funabashi, Managing, p. 190. 123. International Monetary Fund, Summary Proceedings, 1987, pp. 107-108. 124. IMF CF, SM/87/173, July 23, 1987; see also IMF CF, EBM/87/125, August 28, 1987. 125. International Monetary Fund, World Economic Outlook, October 1987, p. 22. 126. International Monetary Fund, World Economic Outlook, April 1987, pp. 20-21. 127. International Monetary Fund, Summary Proceedings, 1987, pp. 90-91. 128. Funabashi, Managing, p. 54. 129. David Marsh, The Bundesbank: The Bank that Rules Europe (London: Heinemann, 1992), pp. 74-75. 130. International Monetary Fund, IMF Survey, June 15, 1987, p. 188. 131. IMF CF, Interim Committee, November 27, 1987 session. 132. Rudiger Dornbusch, "Secretary Baker Hits the Campaign Trail," New York Times, October 7, 1987, p. A31. 133. "U.S. Cautions Bonn That It May Force the Dollar Lower," New York Times, October 16, 1987, p. 1. "Stocks Plunge Despite Baker Reassurances," Washington Post, October 16, 1987, p. A16. 134. "Baker and West German Officials Agree on Changes in Group of Seven's Accord," Wall Street Journal, October 20, 1987, p. 3. 135. "Stock Market Takes Biggest Nose Dive Yet," Washington Post, October 17, 1987, p. 1. 136. "Strains Appear in Group of Seven's Ranks," Wall Street Journal, October 19, 1987, p. 42. 137. Funabashi, Managing, p. 212. 138. Funabashi, Managing, p. 217. Martin Feldstein, "Correcting the Trade Deficit," Foreign Affairs, Vol. 65, No. 4 (1987), p. 799. 139. Margaret Thatcher, The Downing Street Years (London: HarperCollins, 1993), p. 783. 140. Lawson, The View, p. 752. 141. Andrew Crockett, "Monetary Policy Implications of Increased Capital Flows," Bank of England Quarterly Bulletin, Vol. 33, No. 4 (November 1993), p. 500. Notes to Chapter 13 673

142. Bretton Woods Commission, "Commission Report," in Bretton Woods: Looking to the Future (Washington: Bretton Woods Committee, 1994), p. A5. 143. Dobson, Economic Policy Coordination, p. 78. 144. International Monetary Fund, World Economic Outlook, April 1988, pp. 24-25. 145. International Monetary Fund, World Economic Outlook, October 1987, p. 17. 146. International Monetary Fund, World Economic Outlook, October 1988, p. 30. 147. Lawson, The View, p. 756. Catte, Galli, and Rebecchini, "Concerted Interven- tion," pp. 212-13. 148. International Monetary Fund, World Economic Outlook, October 1986, p. 24. 149. International Monetary Fund, World Economic Outlook, October 1989, p. 35. 150. "Choosing the Moment," Economist, February 12, 1994, p. 78. 151. Dominguez and Frankel, Intervention Policy, pp. 135-37. 152. Morris Goldstein, David Folkerts-Landau, Mohamed El-Erian, Steven Fries, and Liliana Rojas-Suarez, International Capital Markets: Developments, Prospects, and Policy Issues (Washington: International Monetary Fund, 1992), p. 26, Table 3. Morris Goldstein and others, International Capital Markets, Part II, Systemic Issues in International Finance (Washington: International Monetary Fund, 1993), p. 91, Table A9. 153. Ralph C. Bryant, International Financial Intermediation (Washington: Brookings Institution, 1987), pp. 80-81. Morris Goldstein, David Folkerts-Landau, Peter Garber, Liliana Rojas-Suarez, and Michael Spencer, International Capital Markets, Part I, Exchange Rate Management and International Capital Flows (Washington: International Monetary Fund, 1993), pp. 66-67, 69. 154. Dobson, Economic Policy Coordination, pp. 95-96. 155. International Monetary Fund, World Economic Outlook, April 1988, p. 26, and World Economic Outlook, October 1988, p. 33. 156. For instance: in the United States gross transactions in bonds and shares between domestic and foreign residents represented 2.8 percent of GDP in 1970 but 92.5 percent in 1990. For Japan the equivalent figures are 1.5 percent (1975) and 118.6 percent (1990). See Crockett, "Monetary Policy Implications," pp. 493-94. 157. International Monetary Fund, World Economic Outlook, October 1990, p. 88. 158. International Monetary Fund, World Economic Outlook, October 1993, p. 59. 159. Jeffrey A. Frankel and Katharine C. Rockett, "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, Vol. 78 (June 1988), pp. 318-40 (quotation: p. 330). Otmar Issing, Internationale Wdhrungsordnung (Tubingen: J.C.B. Mohr, 1991), p. 32. 160. Letter of President Ronald Reagan, cited in Attali, Verbatim, Vol. 1, p. 334. 161. This is also true of coordination and policy consensus involving developing nations. In the favorable circumstances of the combination of growth and low interest rates, spreads are narrower, and the penalties in the borrowing market for debtors with poor track records are reduced; when spreads widen, the borrowing privilege of old- established debtors becomes clearer. 162. Jacob A. Frenkel, Morris Goldstein, and Paul R. Masson, "International Coordina- tion of Economic Policies: Scope, Methods, and Effects," in Economic Policy Coordination, ed. by Wilfried Guth (Washington: International Monetary Fund and HWWA-Institut fur Wirtschaftsforschung-Hamburg, 1988), pp. 163, 184-85. 674 INTERNATIONAL MONETARY COOPERATION

163. Ronald I. McKinnon, "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, Vol. 31 (March 1993), pp. 30, 33. 164. Andrew Crockett, "Strengthening International Economic Cooperation: The Role of Indicators in Multilateral Surveillance," in The Quest for National and Global Economic Stability, ed. by Wietze Eizenga, E. Frans Limburg, and Jacques J. Polak (Dor- drecht: Kluwer, 1988), p. 13. Issing, Wdhrungsordnung, p. 27. 165. In the recession of the early 1990s, a slight change of emphasis occurred. The IMF's April 1992 World Economic Outlook included for the first time a feature on "Short- Term Policy Concerns" for the major industrial countries (pp. 12-16). 166. International Monetary Fund, World Economic Outlook, April 1986, p. 17.

Chapter 14* The Problems of the New Regionalism

1. See also William Diebold, Jr., Trade and Payments in Western Europe: A Study in Economic Cooperation 1947-51 (New York: Harper, 1952), p. 410. 2. Address of President Havel, June 13, 1991, FBIS-EEU 91/114. 3. World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth—A Long-Term Perspective Study (Washington: World Bank, 1989), p. 149. 4. "Prescription for the IMF," Economist, March 15, 1980, p. 18. 5. See also Margaret Kelly, Naheed Kirmani, Miranda Xafa, Clemens Boonekamp, and Peter Winglee, Issues and Developments in International Trade Policy, IMF Occasional Paper No. 63 (Washington: International Monetary Fund, 1988), Table Al, p. 117. 6. Paul Kennedy, Preparing for the Twenty-First Century (London: HarperCollins, 1993), p. 200. 7. Lester Thurow, Head to Head: The Coming Economic Battle Among Japan, Europe, and America (New York: William Morrow, 1992), p. 117-24. 8. International Monetary Fund, Annual Report, 1979 (Washington: International Monetary Fund, 1979), p. 40. 9. International Monetary Fund, Annual Report, 1980, p. 47. 10. Pierre Favier, Michel Martin-Rolland, La Decennie Mitterrand, Vol. 1, Les ruptures (Paris, Editions Seuil, 1990), pp. 451, 461, 473-74. 11. Jeffrey Sachs and Charles Wyplosz, "The Economic Consequences of President Mitterrand," Economic Policy, Vol. 2 (April 1986), pp. 275-77. Organization for Economic Cooperation and Development, Why Economic Policies Change Course: Eleven Case Studies (Paris: Organization for Economic Cooperation and Development, 1988), pp. 61-62. 12. See Horst Ungerer, Jouko J. Hauvonen, Augusto Lopez-Claros, and Thomas Mayer, The European Monetary System: Developments and Perspectives, IMF Occasional Paper No. 73 (Washington: International Monetary Fund, 1990), p. 6. 13. International Monetary Fund, Annual Report, 1985, p. 44. 14. The deficit stood at 12.7 percent of GDP in 1985, fell to 9.4 percent in 1986, but then rose again to 11.2 percent in 1987 and to 13.9 percent in 1988. Calculated from International Monetary Fund, International Financial Statistics Yearbook, 1992. 15. Keesings Contemporary Archives, Vol. 32 (1986), p. 34107. Notes to Chapter 14 675

16. Real GDP growth was 4.8 percent in 1961-73 and 2.2 percent in 1980-90. Commission of the European Communities. 17. Committee for the Study of Economic and Monetary Union, Report on Economic and Monetary Union in the European Community (Delors Report) (Luxembourg: Office for Official Publications of the European Community, 1989), p. 18. 18. Ungerer and others, European Monetary System, pp. 42-43. 19. Jacques Melitz, "Monetary Discipline and Cooperation in the European Monetary System: A Synthesis," in The European Monetary System, ed. by Francesco Giavazzi, Stefano Micossi, and Marcus Miller (Cambridge, England: Cambridge University Press, 1988), pp. 51-79. Francesco Giavazzi and Alberto Giovannini, "The Role of the Ex- change-Rate Regime in a Disinflation: Empirical Evidence on the European Monetary System," in Giavazzi, Micossi, and Miller, eds., European Monetary System, pp. 85-107. Ungerer and others, European Monetary System. 20. Alan Walters, "Money on a Roller-Coaster," The Independent, July 14, 1988. See also Alan Walters, Sterling in Danger: The Economic Consequences of Pegged Exchange Rates (London: Fontana, 1990). Tommaso Padoa-Schioppa, "The European Monetary System: A Long-Term View," in Giavazzi, Micossi, and Miller, eds., European Monetary System, pp. 372-76. See the criticism of Peter B. Kenen, EML7 After Maastricht (Washington: Group of Thirty, 1992), p. 7, footnote 9; and also Peter B. Kenen, "Capital Controls, the EMS and EMU," Economic Journal, Vol. 105 (January 1995), pp. 181-92. 21. "Bundesbank Warning Over EMU Terms," Financial Times, February 8/9, 1992,

P. 2. 22. Bild-Zeitung, December 5, 1991. Wilhelm Nolling, Vnser Geld: Der Kampf urn die Stabilitdt der Wdhrungen in Europa (Berlin: Ullstein, 1993). 23. Morris Goldstein, David Folkerts-Landau, Peter Garber, Liliana Rojas-Suarez, and Michael Spencer, International Capital Markets, Part I, Exchange Rate Management and International Capital Flows (Washington: International Monetary Fund, 1993), pp. 10-11. 24- This account, as well as that of subsequent paragraphs, is based on newspaper reporting, in particular on "Sterling Was Being Sold Like Water Running Out of a Tap," Financial Times, September 19/20, 1992, pp. 2-3, and "Behind the EMS Crisis," Financial Times, December 11, 1992, p. 2, and December 12/13, 1992, p. 2, and on interviews by the author. 25. Morris Goldstein and others, International Capital Markets, Part I (1993), pp. 14-15. 26. "French Franc Pays Price for Partnership with D-Mark," Financial Times, Septem- ber 29,1992, p. 2. "How the French Fought to Save the Franc," Financial Times, November 20, 1992, p. 19. 27. Goldstein and others, International Capital Markets, Part I (1993), pp. 4, 58. 28. The Governor of the Danish central bank, Erik Hoffmeyer, quoted in "Brussels Backs UK over ERM," Financial Times, June 1, 1993, p. 20. 29. "Schlesinger Criticises ERM," Financial Times, December 2, 1992, p. 1. 30. Commission of the European Communities. 31. International Monetary Fund, Annual Report, 1992, p. 37. 32. International Monetary Fund, Annual Report, 1993, p. 9. 33. James M. Boughton, The CFA Franc Zone: Currency Union and Monetary Standard, IMF Working Paper No. 91/133 (Washington: International Monetary Fund, 1991), p. 2. 676 INTERNATIONAL MONETARY COOPERATION

34. IMF CF, EBM/69/78, August 10, 1969. 35. Rattan J. Bhatia, The West African Monetary Union: An Analytic Review, IMF Occasional Paper No. 35 (Washington: International Monetary Fund, 1985), p. 9. 36. Robert A. Mundell, "A Theory of Optimum Currency Areas," American Economic Review, Vol. 51 (September 1961), pp. 657-65. 37. Boughton, CFA Franc, Table 4. 38. See Bhatia, West African Monetary Union, p. 39. 39. Jean A.P. Clement, "Rationale for the CFA Franc Realignment," International Monetary Fund, IMF Survey, February 7, 1994, p. 34. 40. "Former Adjustment Strategy of African Franc Zone Countries Hurts Their Fiscal Positions," International Monetary Fund, IMF Survey, February 7, 1994, pp. 37-38. 41. World Bank, Adjustment in Africa: Reform, Results, and the Road Ahead (New York: Oxford University Press, 1994), p. 56. 42. IMF CF, C/C6te dTvoire/1760, August 12, 1991, Staff Report for Article IV Consultation and Request for Stand-By Arrangement. 43. "IMF Persuades French Africa to Go for Growth," Financial Times, January 13, 1994, p. 4. 44. International Monetary Fund, Annual Report, 1991, p. 35. 45. "Unrest Erupts in France's Former African Empire After Money Is Devalued," New York Times, February 23, 1994, p. A6. 46. "La France conditionne son aide aux pays de la zone franc a des accords avec le FMI," Le Monde, September 23, 1993, p. 18. 47. "Une solidarite exigeante," Le Monde, September 23, 1993, p. 18. 48. Clement, "Rationale," p. 34. 49. Richard A. Higgott, Andrew F. Cooper, and Jenelle Bonnor, "Asia-Pacific Eco- nomic Cooperation: An Evolving Case-Study in Leadership and Co-operation Building," International Journal, Vol. 19 (Autumn 1990), p. 828. 50. International Monetary Fund, International Financial Statistics Yearbook, 1994, pp. 110-13. 51. Ishikawa Tadao, "Asia and Japan," in Asia and Japan: The Search for Modernization and Identity, ed. by Andrew J.L. Armour (London: Athlone Press, 1985), p. 7. 52. "Sanko Deal May Aid Shipyards in Japan; Asian Nations Pursue Trading Union Plan," Wall Street Journal, June 11, 1973, p. 6. 53. Higgott, Cooper, and Bonnor, "Asia-Pacific Economic Cooperation," pp. 832-35. 54. "Southeast Asia Nations Sign Free-Trade Accord," New York Times, January 29, 1992, p. D5. 55. Quoted in "Growing. . ." Time, September 14, 1992, p. 38. 56. Ippei Yamazawa, Koji Taniguchi, and Akira Hirata, "Trade and Industrial Adjust- ment in Pacific Asian Countries," The Developing Economies, Vol. 21 (December 1983), p. 285. 57. "In Search of a New Crystal Ball," Far Eastern Economic Review, November 9, 1979, pp. 64-65. 58. Yamazawa, Taniguchi, and Hirata, "Trade and Industrial Adjustment," pp. 291-92. Stephen Guisinger, "Foreign Direct Investment Flows in East and Southeast Asia: Policy Issues," ASEAN Economic Bulletin, Vol. 8, No. 1 (July 1991), pp. 29-46. Notes to Chapter 14 677

Randall S. Jones, "Japanese Direct Investment in the United States," Asian Affairs: An American Review, Vol. 18, No. 3 (Fall 1991), p. 173. 59. Economist, "Survey," November 16, 1991, p. 7. 60. Miyohei Shinohara, "Trends and Dynamics of East and Southeast Asian Econo- mies," Asian Development Review, Vol. 3, No. 1 (1985), p. 54. Kazushi Ohkawa, "Japan's Development: A Model for Less-Developed Countries?" Asian Development Review, Vol. l,No. 2 (1983), pp. 45-57. 61. The issue became one of the favorite testing grounds of economists for different intellectual or ideological persuasion. Was this state-led growth, or did it result from the free play of forces in a market-determined setting? Some analysts have argued that the Asian model merely demonstrated the effectiveness of market economic mechanisms. Two of the most influential statements of this general position have been: Milton Friedman and Rose D. Friedman, Free to Choose: A Personal Statement (New York: Harcourt Brace Jovanovich, 1980); Deepak Lai, The Poverty of "Development Economics" (London: Institute of Economic Affairs, 1983). See also the general overview in Richard F. Donner, "Ap- proaches to the Politics of Economic Growth in Southeast Asia," Journal of Asian Studies, Vol. 50 (November 1991), pp. 818-49. As applied to East Asian economies, see Edward K.Y. Chen, Hyper-growth in Asian Economies: A Comparative Study of Hong Kong, Japan, Korea, Singapore and Taiwan (London: Macmillan, 1979). Others claimed precisely the reverse, that the geese demonstrated the attractions of "getting prices wrong." In practice, however, almost all observers recognize that a substantial component of the "success story" is not "miraculous," but can be explained in quite conventional terms: as a consequence of high savings and investment ratios, and a high rate of human capital formation (with much higher standards of education and literacy than can be found in other countries of equivalent income levels). See in particular World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993). 62. Mataji Umemura and Toshiyoki Mizoguchi, eds., Quantitative Studies on Economic History of Japan Empire 1890-1940 (Tokyo: Hitotsubashi University Press, 1981), p. 64. Also Bruce Cumings, "The Origins and Development of the Northeast Asian Political Economy: Industrial Sectors, Product Cycles, and Political Consequences," International Organization, Vol. 38, No. 1 (Winter 1984), pp. 1-40. 63. Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton, New Jersey: Princeton University Press, 1990), pp. 73-74. 64. See Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven, Connecticut: Yale University Press, 1982). For an application, see Wade, Governing the Market, p. 71: "For all its unsavory aspects, Taiwan's exclusionary and authoritarian regime has allowed the country to avoid the political fate of many developing countries, of chronic fluctuation between fragile democratic experiments, incompetent authoritarianism, and demagogues. It has been able to give businesspeople the confidence that it will do what it says it will do." 65. Stephan Haggard, Richard N. Cooper, and Chung-in Moon, "Policy Reform in Korea," in Political and Economic Interactions in Economic Policy Reform: Evidence from Eight Countries, ed. by Robert H. Bates and Anne O. Krueger (Oxford: Basil Blackwell, 1993), pp. 294-332. 678 INTERNATIONAL MONETARY COOPERATION

66. Cumings, "Origins," p. 26. 67. See Ronald I. McKinnon, Money and Capital in Economic Development (Washington: Brookings Institution, 1973), pp. 107-11, 163-64. 68. Wade, Governing the Market, p. 79. 69. Wade, Governing the Market, pp. 81-82. 70. United Nations, Yearbook of International Trade Statistics, 1968, p. 475; 1980, p. 1202; and 1984, p. 164. Republic of China, Executive Yuan, Directorate-General of Budget, Accounting and Statistics, Statistical Yearbook of the Republic of China, 1975 and 1989. See also John C. H. Fei, Gustav Ranis, and Shirley W. Y. Kuo, Growth with Equity: The Taiwan Case (New York: Oxford University Press, 1979), p. 31. 71. Wade, Governing the Market, pp. 318-19. 72. "South Korea's Generals Invent Merger by Decree," Economist, September 6, 1980, p. 67. See also, "After the Debt Crisis . . . the Credit Crunch," Far Eastern Economic Review, November 9, 1979, p. 62. 73. "Caught in the Oil-Debt Trap," Far Eastern Economic Review, October 19, 1979, p. 58. 74. "Prescription for the IMF," Economist, March 15, 1980, p. 18. 75. "Southeast Asian Countries Will Outgrow Nations to North in 1980s, Study Shows," Wall Street Journal, May 12, 1981, p. 36. 76. IMF CF, C/Korea/810, February 19,1982, Gyorgy Szapary memorandum for Manag- ing Director. 77. Bela Balassa and John Williamson, Adjusting to Success: Balance of Payments Policy in the East Asian NICs (Washington: Institute for International Economics, 1987), especially pp. 70-71. Rudiger Dornbusch and Yung Chul Park, "Korean Growth Policy," Brookings Papers on Economic Activity, 1987(2), pp. 389-444. "Agressive measures such as appreciation, wage increases, capital account liberalization, and fiscal expansion are not in order" (p. 438). 78. IMF CF, EBM/87/97, July 6, 1987, and EBS/87/134, June 22, 1987 staff report. 79. Wade, Governing the Market, p. 319. 80. Wade, Governing the Market, p. 316. 81. Thurow, Head to Head, p. 213. 82. "Geography and Geometry," Economist, November 16, 1991, p. 9. 83. World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993), p. 135. "Vehicle of Growth," Financial Times, August 31, 1993, p. IV. 84. "Japan Rallies Asia Over U.S. Trade," New York Times, June 7, 1993, p. D3.

Chapter 15. Low* Income Countries and the International Financial System

1. World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth—A Long-Term Perspective Study (Washington: World Bank, 1989), p. 17. Notes to Chapter 15 679

2. Ruth Leger Sivard, World Military and Social Expenditures 1987-88 (Washington: World Priorities Inc., 1987), p. 31. 3. World Bank, Adjustment in Africa: Reform, Results and the Road Ahead (New York: Oxford University Press, 1994). 4. World Bank, Sub-Saharan Africa, p. 49. 5. Figures from World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993), p. 206. 6. See Robert H. Bates, Markets and States in Tropical Africa: The Political Basis of Agricultural Policies (Berkeley, California: University of California Press, 1981). 7. Joan M. Nelson, "Poverty, Equity, and the Politics of Adjustment," in The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State, ed. by Stephan Haggard and Robert R. Kaufman (Princeton, New Jersey: Princeton University Press, 1992), p. 244. 8. Sayre P. Schatz, "Pirate Capitalism and the Inert Economy of Nigeria," Journal of Modern African Studies, Vol. 22, No. 1 (1984), p. 55. Richard Sandbrook, The Politics of Africa's Economic Recovery (Cambridge, England: Cambridge University Press, 1993), p. 30. 9. Two crucial works are Anne O. Krueger, Liberalization Attempts and Consequences (New York: Ballinger for National Bureau of Economic Research, 1978); and Jagdish Bhagwati, Anatomy and Consequences of Exchange Control Regimes (New York: Ballinger for National Bureau of Economic Research, 1978). 10. Independent Commission on International Development Issues (Brandt Commis- sion), North-South: A Programme for Survival (Cambridge, Massachusetts: MIT Press, 1980), p. 92. 11. Yusuf Bangura, "IMF/World Bank Conditionality and Nigeria's Structural Adjust- ment Programme," in The IMF and the World Bank in Africa: Conditionality, Impact and Alternatives, ed. by Kjell J. Havnevik (Uppsala: Scandinavian Institute of African Studies, 1987), p. 106. 12. Bade Onimode, "IMF and World Bank Programmes in Africa," in The IMF, the World Bank and the African Debt, Vol. 1, The Economic Impact, ed. by Bade Onimode (London: Institute for African Alternatives and Zed Books, 1989), pp. 26, 33. 13. Thomas M. Callaghy, "Lost Between State and Market: The Politics of Economic Adjustment in Ghana, Zambia, and Nigeria," in Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World, ed. by Joan M. Nelson (Princeton, New Jersey: Princeton University Press, 1990), p. 259. 14- See Figure 12-2. Also see Edward M. Graham and Paul R. Krugman, "The Surge in Foreign Direct Investment in the 1980s," in Foreign Direct Investment, ed. by Kenneth A. Froot (Chicago: University of Chicago Press, 1993), p. 14. 15. Morris Goldstein, The Global Effects of Fund-Supported Adjustment Programs, IMF Occasional Paper No. 42 (Washington: International Monetary Fund, 1986), p. 16. 16. See Jayati Ghosh, "Foreign Debt and Economic Development: The Case of Zaire," Development and Change, Vol. 17 (1986), pp. 458-63. 17. IMF CF, B620.1, EB/CW/DC/89/5, February 16, 1989, Progress of Initiatives Bene- fiting Sub-Saharan Africa. 680 INTERNATIONAL MONETARY COOPERATION

18. See Alassane D. Ouattara, "Design, Implementation, and Adequacy of Fund Pro- grams in Africa," in Africa and the International Monetary Fund, ed. by Gerald K. Helleiner (Washington: International Monetary Fund, 1986), p. 76. 19. Raymond F. Mikesell, "Appraising IMF Conditionality: Too Loose, Too Tight, or Just Right," in IMF Conditionality, ed. by John Williamson (Washington: Institute for International Economics, 1983), p. 58. 20. Executive Board Decision No. 6056-(79/38), March 2, 1979, Selected Decisions and Selected Documents of the International Monetary Fund, Nineteenth Issue (Washington: International Monetary Fund, 1994), p. 85. 21. CM. Nyirabu, "A View from Africa: 2," in Helleiner, ed., Africa, p. 32. 22. World Bank, World Debt Tables, 1992-93, Vol. 1 (Washington: World Bank, 1992), pp. 188, 164, 166, 178. 23. G.K. Helleiner, "An Unofficial View," in Policies for African Development: From the 1980s to the 1990s, ed. by I.G. Patel (Washington: International Monetary Fund, 1992), p. 106. See, in general, Matthew Martin, The Crumbling Facade of African Debt Negotiations: No Winners (London: Macmillan, 1991). Alexis Rieffel, The Role of the Paris Club in Managing Debt Problems, Essays in International Finance No. 161 (Princeton, New Jersey: Princeton University Press, 1985). 24. Rieffel, Role of Paris Club, p. 15. 25. In 1984. See Eduard H. Brau, "External Debt Management in the African Context," in Helleiner, ed., Africa, p. 169. 26. Julius K. Nyerere, "An Address," Development and Change, Vol. 17 (1986), p. 394. 27. Richard P.C. Brown, Public Debt and Private Wealth: Debt, Capital Flight and the IMF in Sudan (London: Macmillan, 1992), p. 22. 28. Keesings Contemporary Archives, Vol. 26 (1980), p. 30557. 29. Jack Boorman, "A View from the IMF," in Patel, ed., Policies, p. 48. 30. International Monetary Fund, World Economic Outlook, 1982: A Survey by the Staff of the IMF, IMF Occasional Paper No. 9 (Washington: International Monetary Fund, 1982), p. 96. 31. Reuters, Africa Analysis, November 27, 1987. 32. See Susan Schadler, Franek Rozwadowski, Siddharth Tiwari, and David O. Rob- inson, Economic Adjustment in Low-Income Countries: Experience Under the Enhanced Structural Adjustment Facility, IMF Occasional Paper No. 106 (Washington: International Monetary Fund, 1993). 33. Michel Camdessus, remarks to the UN Economic and Social Council, Geneva, June 26, 1987, reproduced in International Monetary Fund, IMF Survey, June 29, 1987, p. 195. 34. Schadler and others, Economic Adjustment, p. 40. 35. Helleiner, "Unofficial View," p. 109. 36. David Finch, "Let the IMF be the IMF," The International Economy, January/ February 1988, pp. 126-28. 37. See Jacques J. Polak, The World Bank and the International Monetary Fund: A Changing Relationship (Washington: Brookings Institution, 1994). 38. IMF CF, B600 IS/89/3, March 24, 1989. Notes to Chapter 15 681

39. IMF CF, SM/89/54, Revision 1, March 31, 1989, Bank-Fund Collaboration in Assisting Member Countries. 40. IMF CF, B620.1, EB/CW/DC/89/5, February 16, 1989, Progress of Initiatives Bene- fiting Sub-Saharan Africa. 41. Some of the most important contributions to this literature are Sidney Dell, On Being Grandmotherly: The Evolution of IMF Conditionally, Essays in International Finance No. 144 (Princeton, New Jersey: Princeton University Press, 1981). Manuel Guitian, Fund Conditionally: Evolution of Principles and Practices, IMF Pamphlet Series, No. 38 (Washington: International Monetary Fund, 1981). John Williamson, "On Judging the Success of IMF Policy Advice," in Williamson, ed., IMF Conditionality (Washington: Institute for International Economics, 1983), pp. 129-45. 42. Rieffel, Role of the Paris Club, p. 16. 43. Goldstein, Global Effects, pp. 10-11. In 1981, for the demand-restraint cases, the real growth rate target was 4.2 percent, but the actual outcome only 0.4 percent. 44- Mohsin S. Khan and Malcolm D. Knight, Fund-Supported Adjustment Programs and Economic Growth, IMF Occasional Paper No. 41 (Washington: International Monetary Fund, 1985), p. 24. 45. See, for instance, Tony Killick, ed., The Quest for Economic Stabilization: The IMF and the Third World (New York: St. Martin's Press, 1984). 46. Carlos F. Diaz-Alejandro, "Some Economic Lessons of the Early 1980s," in Power, Passions, and Purpose: Prospects for North-South Negotiations, ed. by Jagdish N. Bhagwati and John Gerard Ruggie (Cambridge, Massachusetts: MIT Press, 1984), pp. 186-87. 47. Quoted in Haroub Othman and Ernest Maganya, "Tanzania: The Pitfalls of the Structural Adjustment Programme," in Onimode, ed., The IMF, Vol. 1, p. 93. 48. "IMF Official Resigns Charging U.S. Loan Pressure," Reuters, March 19, 1987. Finch, "Let the IMF." 49. "Back it or Scrap it," Euromoney, September 1990, p. 34. See also Patricia Adams, "The World Bank and the IMF in Sub-Saharan Africa: Undermining Development and Environmental Sustainability," Journal of International Affairs, Vol. 46, No. 1 (1992), especially pp. 102-104. 50. Rieffel, Role of the Paris Club, p. 28. 51. Brown, Public Debt, p. 134. See also Fantu Cheru, "The Role of the IMF and World Bank in the Agrarian Crisis of Sudan and Tanzania: Sovereignty vs Control," in The IMF, the World Bank and the African Debt, Vol. 2, The Social and Political Impact, ed. by Bade Onimode (London: Institute for African Alternatives and Zed Books, 1989), p. 88. 52. Brown, Public Debt, p. 188. 53. Details in World Bank, World Debt Tables, 1992-93, Vol. 1, p. 96. 54- See the survey in P.D. Ncube, M. Sakala, and M. Ndulo, "The International Monetary Fund and the Zambian Economy—A Case," in Havnevik, ed., The IMF, pp. 127-48. 55. IMF CF, C/Zambia/1760, January 17,1986, Memorandum on Economic and Finan- cial Policies of Zambia. 56. IMF CF, C/Zambia/810, March 11, 1987, cable to IMF. 682 INTERNATIONAL MONETARY COOPERATION

57. IMF CF, C/Zambia/818, May 1, 1987, Dr. K.D. Kaunda radio and television broadcast: New Economic Recovery Programme. 58. Quoted in "Structural Maladjustment and the CFA Franc," Financial Times, No- vember 15, 1993, p. 4. 59. Francois Bourguignon and Christian Morrisson, Adjustment and Equity in Developing Countries: A New Approach (Paris: Organization for Economic Cooperation and Develop- ment, 1992), p. 102. 60. J. Clark Leith and Michael F. Lofchie, "The Political Economy of Structural Adjustment in Ghana," in Political and Economic Interactions in Economic Policy Reform: Evidence from Eight Countries, ed. by Robert H. Bates and Anne O. Krueger (Oxford: Basil Blackwell, 1993), p. 281. 61. IMF CF, C/Ghana/1760, September 29, 1982, Dr. Kwesi Botchwey letter to de Larosiere. 62. See E. Wayne Nafziger, The Debt Crisis in Africa (Baltimore: Johns Hopkins Univer- sity Press, 1993), p. 126. 63. IMF CF, C/Ghana/810, June 2, 1983 memorandum: Article IV Consultation Dis- cussions and Negotiations for Use of Fund Resources. 64. Quoted in Callaghy, "Lost Between State and Market," p. 275. 65. World Bank, Sub-Saharan Africa, pp. 106, 137. 66. Bourguignon and Morrisson, Adjustment and Equity, pp. 94-95. 67. Quoted in Callaghy, "Lost Between State and Market," p. 306. 68. The idea of enhanced surveillance was rejected as inappropriate in the case of a country undergoing basic adjustment. IMF CF, C/Nigeria/820, April 10, 1986 memorandum on meeting of Managing Director with Nigerian Minister of Finance, April 7, 1986. 69. Yusuf Bangura, "Crisis and Adjustment: The Experience of Nigerian Workers," in Onimode, ed., The IMF, Vol. 2, p. 182. 70. International Monetary Fund, International Financial Statistics Yearbook, 1994, p. 563. 71. Quoted in "Anybody Seen a Giant?" Economist, August 21, 1993, p. 8. 72. Percy S. Mistry, "Africa's Adjustment and the External Debt Problem," in Patel, ed., Policies, p. 117. 73. World Bank, Adjustment in Africa. 74. World Bank, East Asian Miracle, pp. 29-32. 75. For instance, Sandbrook, Africa's Economic Recovery, pp. 49-50, 139-40. 76. Some impressive models can be found in Turkey and Jamaica. See Oliver Letwin, Privatising the World: A Study of International Privatisation in Theory and Practice (London: Cassel, 1988), p. 48.

Chapter 16. Plan or Price? The Transformation of Centrally Planned Economies

1. For instance, Olivier Blanchard, Rudiger Dornbusch, Richard Layard, Richard Portes, Jeffrey Sachs. Later these advisers were also joined by economists from countries Notes to Chapter 16 683

that had already made successful transitions (Leszek Balcerowicz, Marek Dabrowski). The overall record of these advisers was mixed. They gave useful macroeconomic advice on stabilization, but in a number of prominent cases (notably Dornbusch and Sachs) mistak- enly urged reforming countries not to place a high priority on servicing debt or reaching agreement with commercial bankers. See, for instance, Rudiger Dornbusch, Structural Adjustment in Latin America (Washington: Woodrow Wilson Center, 1991), p. 10: "Hun- gary has a crazy fetish about servicing totally their debt. The world looks at Hungary and says: 'What the hell are you doing?' The Hungarians have a crazy finance minister. Latin America had the same type of people for a while." Often economists with more concrete experience of debt crises gave exactly the opposite advice. For instance, the chief Mexican negotiator wrote in an article entitled "What Eastern Europe Can Learn from Mexico": "With regard to external debt management, note that achieving a solid, comprehensive agreement that puts to rest any fears regarding possible future renegotia- tions is even more important than achieving a large discount on the debt." (The Interna- tional Economy, May/June 1991, pp. 31-32). 2. Paul M. Sweezy, "Peaceful Transition from Socialism to Capitalism?" Monthly Review, Vol. 15, No. 11 (March 1964), p. 588. 3. International Monetary Fund, World Economic Outlook, May 1983: A Survey by the Staff of the International Monetary Fund, IMF Occasional Paper No. 21 (Washington: International Monetary Fund, 1983), pp. 103-106. 4- Interim Committee, May 7-8,1990 communique, reproduced in International Mon- etary Fund, Annual Report, 1990 (Washington: International Monetary Fund, 1990), p. 112. 5. International Monetary Fund, Annual Report, 1990, p. 20. 6. Keesing's Contemporary Archives, Vol. 27 (1981), p. 30765. 7. Zhou Shulian, Wu Jinglian, and Wang Haibo, Lirun fanchou he shehui-zhuyi de jiye guanli (The Profit Category and Socialist Business Management), Beijing, 1979 (translated in Chinese Economic Studies, Vol. 14, No. 2-3 (Winter-Spring 1980-81), pp. 11-12). I owe this reference to Mark Allen. 8. Ronald I. McKinnon, "Taxation, Money and Credit in a Liberalizing Socialist Economy," in The Emergence of Market Economies in Eastern Europe, ed. by Christopher Clague and Gordon C. Rasser (Cambridge, Massachusetts: Basil Blackwell, 1992), p. 123. 9. Harold K. Jacobson and Michel Oksenberg, China's Participation in the IMF, the World Bank, and GATT: Toward a Global Economic Order (Ann Arbor, Michigan: University of Michigan Press, 1990), pp. 63-64. 10. Jacobson and Oksenberg, China's Participation, p. 70. 11. IMF CF, C/China/000, February 21, 1980, Luc de Wulf note. 12. International Monetary Fund, Annual Report, 1980, p. 83. IMF CF, EBM/80/122, August 7, 1980 (on the quota increase). 13. Jacobson and Oksenberg, China's Participation, p. 117. 14. IMF CF, C/China/810, December 19, 1980, Tun Thin memorandum: Article IV Consultations. 15. See Michael W. Bell, Hoe Ee Khor, and Kalpana Kochhar, China at the Threshold of a Market Economy, IMF Occasional Paper No. 107 (Washington: International Mone- tary Fund, 1993), p. 9. 684 INTERNATIONAL MONETARY COOPERATION

16. "Zhu Heeds Foreign Advice to Slow China's Growth," Financial Times, August 25, 1993, p. 3. 17. IMF CF, C/Yugoslavia/1760, April 1, 1985, Article IV Consultation Report. 18. IMF RD, September 29, 1982, L.A. Whittome memorandum. 19. IMF CF, EBS/83/141, July 8, 1983. 20. Dubravko Mihaljek, "Intergovernmental Fiscal Relations in Yugoslavia, 1972-90," in Transition to Market: Studies in Fiscal Reform, ed. by Vito Tanzi (Washington: Interna- tional Monetary Fund, 1993), pp. 189-94. 21. IMF CF, C/Hungary/710, December 21, 1966, L. A. Whittome and Joseph Gold memorandum. 22. In 1957 Poland negotiated a substantial commercial credit with the U.S. Eximbank, and the Party General Secretary GomuUca also expressed the wish of his country to rejoin the IMF; but apparently the initiative foundered on U.S. objections. 23. IMF CF, C/Poland/710, April 25, 1968, Edgar Jones to Ernest Sturc. 24- "Rumania Considers Joining World Monetary Agencies," New York Times, May 17, 1968, pp. 1, 10. 25. IMF CF, C/Romania/810, January 25, 1973, Rolf Evensen memorandum. 26. IMF CF, C/Hungary/710, June 1, 1971 and June 16, 1976, L.A. Whittome memoranda. 27. Interview in Business Week, June 30, 1973, p. 24. 28. See, for instance, "Reform of the International Monetary System is Imminent," in Janos Fekete, Back to the Realities: Reflections of a Hungarian Banker (Budapest: Akade- miai Kiado, 1982), pp. 43-50, 105-106. 29. Fekete, Back to Realities, p. 328. 30. For instance IMF CF, C/Romania/320, September 1, 1977 attachment to note by L.A. Whittome. Andreas C. Tsantis and Roy Pepper, Romania: The Industrialization of an Agrarian Economy under Socialist Planning (Washington: World Bank, 1979). 31. IMF CF, C/Romania/810, November 9, 1981 L.A. Whittome memorandum. 32. IMF CF, C/Romania/150.1, November 27, 1981 L.A. Whittome memorandum. 33. International Monetary Fund, World Economic Outlook, May 1983, p. 104. 34. IMF CF, C/Hungary/810, March 22, 1983 Brian Rose memorandum. 35. J.F. Brown, Eastern Europe and Communist Rule (Durham, North Carolina: Duke University Press, 1988), p. 219. 36. This paper was presented to a Fund mission. IMF CF, C/Hungary/810, April 21, 1983, Preliminary Ideas on the Further Development of the System of Economic Management in Hungary. 37. IMF CF, C/Hungary/810, September 22, 1983 Helen Junz memorandum: Staff Visit. 38. World Bank, Trends in Developing Economies: Extracts, Vol. 1, Eastern Europe and Central Asia (Washington: World Bank, 1993), p. 34. 39. Bartfomiej Kaminski, The Collapse of State Socialism: The Case of Poland (Princeton, New Jersey: Princeton University Press, 1991), p. 130. Klaus Schroder, "Die Verschuldung Polens im Westen," in Krise in Polen, ed. by Hermann Voile and Wolfgang Wagner (Bonn: Verlag fur Internationale Politik, 1982), p. 73. 40. Iwona Antowska-Bartosiewicz and Witold Matecki, Poland's External Debt Problem by the End of 1991 (Warsaw: Friedrich Ebert Foundation for Poland, 1992), p. 10. Notes to Chapter 16 685

41. Schroder, "Die Verschuldung Polens," p. 71. Timothy Garton Ash, The Polish Revolution: Solidarity 1980-1982 (London: Jonathan Cape, 1983), pp. 33-34. 42. Oliver MacDonald, ed., The Polish August: Documents from the Beginnings of the Polish Workers' Rebellion, Gdansk, August 1980 (San Francisco: Ztangi Press, 1981), pp. 102-109. 43. Leszek Balcerowicz, 800 Dni: Szok Kontrolowany (Warsaw: Polska Oficyna Wydaw- nicza BGW, 1992), pp. 10-13. 44. Wojciech Jaruzelski, Stan Wojenny Dlaczego (Warsaw: Polska Oficyna Wydawnicza BGW, 1992), pp. 235, 320. 45. Schroder, Die Verschuldung Polens, pp. 73-74. Zycie gospodarcze 28 (July 21,1981), No. 1556. 46. IMF CF, SI 195, December 18, 1981, David Finch memorandum. 47. IMF CF, C/Poland/000, September 17,1985, Solidarity cable to Managing Director of IMF. 48. Antowska'Bartosiewicz and Matecki, Poland's External Debt Problem, p. 8. 49. Timothy Garton Ash, The Magic Lantern: The Revolution of '89 Witnessed in Warsaw, Budapest, Berlin and Prague (New York: Random House, 1990), p. 43. 50. This was elaborated in a paper of May 1989: See Balcerowicz, 800 Dni, p. 17. 51. Jan T. Gross, "Poland: From Civil Society to Political Nation," in Eastern Europe in Revolution, ed. by Ivo Banac (Ithaca, New York: Cornell University Press, 1992), pp. 66-68. 52. Jeffrey Sachs, Poland's Jump to the Market Economy (Cambridge, Massachusetts: MIT Press, 1993), p. 40. 53. IMF CF, C/Poland/1760, December 22, 1989, Memorandum of Economic Policies. 54. Garton Ash, Magic Lantern, p. 45. "Poland: Practical Politics vs. Economic Neces- sity," New York Times, May 17, 1992, p. 4. 55. IMF CF, EBM/89/163, December 15, 1989. 56. IMF CF, EBM/90/14, February 5, 1990. 57. International Monetary Fund, Annual Report, 1990, p. 21. 58. Leszek Balcerowicz, "Poland," in The Political Economy of Policy Reform, ed. by John Williamson (Washington: Institute for International Economics, 1994), p. 175. 59. Jeffrey Sachs, "My Plan for Poland," The International Economy, December 1989/ January 1990, p. 29: "The hardest part will be in the first six months—through April 1990." 60. See Z. Rajski, "Produkt krajowy brutto," in Gospodarka polska w latach 1990-1992, ed. by L. Zienkowski (Warsaw, 1992); Leszek Balcerowicz, Eastern Europe: Economic, Social and Political Dynamics: A Lecture (London: School of Slavonic and East European Studies, University of London, 1993), p. 12. 61. IMF CF, EBM/91/128, September 20,1991. See also Ben Slay, The Polish Economy: Crisis, Reform, and Transformation (Princeton, New Jersey: Princeton University Press, 1994), p. 99. 62. Sachs, Poland's Jump, p. 63. 63. IMF CF, EBM/91/57, April 18, 1991. 64. "Poles Apart but Ready to Do a Deal," Financial Times, May 29-30, 1993, p. 9. 65. International Monetary Fund, World Economic Outlook, October 1993, p. 85. 686 INTERNATIONAL MONETARY COOPERATION

66. IMF CF, SM/92/132, June 30, 1992, Review of Experience with Programs in Eastern Europe. 67. Vaclav Klaus, "Price Liberalization and Currency Convertibility: Twenty Days After," in Currency Convertibility in Eastern Europe, ed. by John Williamson (Washington: Institute for International Economics, 1991), p. 13. 68. Leslie Lipschitz and Donogh McDonald, eds., German Unification: Economic Issues, IMF Occasional Paper No. 75 (Washington: International Monetary Fund, 1990), p. 52. 69. Gerhard Schroder and others, Vorlage fur das Politburo des Zentralkommittee der

SED} October 30, 1989, reproduced in "'Schock mit schlimmen Folgen,'" Der Spiegel, 46/44, 1992, pp. 102-103. 70. IMF CF, C/Poland/1760, December 4, 1990, Poland; Stand-By Arrangement: Request for Waiver. 71. Mikhail Gorbachev, Gipfelgesprdche: Geheime Protokolle aus meiner Amtszeit (Berlin: Rowohlt, 1993), p. 230. 72. International Monetary Fund, World Bank, Organization for Economic Coopera- tion and Development, and European Bank for Reconstruction and Development, A Study of the Soviet Economy, Vol. 1 (Paris: IMF, World Bank, OECD, and EBRD, 1991), p. 11. These figures almost certainly overstate growth rates, because they ignore—among other influences—the impact of quality deterioration. 73. Gorbachev, Gipfelgesprdche, p. 212. 74. International Monetary Fund and others, A Study of the Soviet Economy, Vol. 2, p. 140. 75. "The President Who Cared Too Much," Financial Times, December 27, 1991, p. 2. 76. Gorbachev, Gipfelgesprdche, p. 228. 77. International Monetary Fund, Common Issues and lnterrepublic Relations in the Former U.S.S.R., IMF Economic Review (Washington: International Monetary Fund, 1992), p. 38. 78. International Monetary Fund and others, A Study of the Soviet Economy, Vols. 1 and 2. 79. Richard H. Ullman, Securing Europe (Princeton, New Jersey: Princeton University Press, 1991), pp. 14-15. 80. In interview with Stephen Cohen, Public Broadcasting Service (PBS), Decem- ber 27, 1994. 81. World Bank, World Debt Tables, 1992-93, Vol. 1 (Washington: World Bank, 1992), p. 30. Economist Intelligence Unit, cited in "A Poor Guest at the Party," Financial Times, October 8, 1991, p. 20. 82. Interview with Mieczyslaw Rakowski, December 28, 1993. 83. "Soviet Bid to Join I.M.F. Still a Puzzle," New York Times, July 29, 1991, p. A6. 84. Alexei V. Mozhin, "Russia's Negotiations with the IMF," in Changing the Economic System in Russia, ed. by Anders Aslund and Richard Layard (London: Pinter Publishers, 1993), pp. 65-66. 85. Boris Fedorov, at meeting of Bretton Woods Commission, Washington, July 20-22, 1994, quoted in International Monetary Fund, IMF Survey, August 8, 1994, p. 252. Notes to Chapter 17 687

86. International Monetary Fund, Annual Report, 1993, p. 60. 87. International Monetary Fund and others, A Study of the Soviet Economy, Vol. 1, p. 15. 88. International Monetary Fund and others, A Study of the Soviet Economy, Vol. 2, p. 145. 89. "Russia Changes Direction of Its Radical Reform," Financial Times, November 30, 1992, p. 17. 90. "Battle Over Russia's Runaway Central Bank," Financial Times, January 22, 1992, p. 2. 91. "Soviet Union Printing Money Round the Clock," Financial Times, September 18, 1991, p. 2. 92. See Michael Bruno, "Stabilization and the Macroeconomics of Transition—How Different Is Eastern Europe?" Economics of Transition, Vol. 1 (1993), pp. 5-19. 93. International Monetary Fund, IMF Survey, February 22, 1993, p. 51.

Chapter 17* From Bretton Woods to the Information Age

1. Kenneth W. Dam, The Rules of the Game: Reform and Evolution in the International Monetary System (Chicago: University o{ Chicago Press, 1982), p. 169. 2. Joseph Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays, Vol. 1 (Washington: International Monetary Fund, 1979), p. 25, quoting Handelsblatt, June 28, 1976. 3. August 18,1972, Reform of the International Monetary System: A Report by the Executive Directors to the Board of Governors, reproduced in Margaret Garritsen de Vries, The International Monetary Fund 1972-1978: Cooperation on Trial, Vol. 3 (Washington: Inter- national Monetary Fund, 1985), p. 27. 4. See Peter B. Kenen, "Capital Controls, the EMS and EMU," Economic ]ournal, Vol. 105 (January 1995), pp. 181-92. 5. The purchasing power parity (PPP) calculations involve a considerable increase in the GDP figures for less industrialized countries compared with GDP calculations based on current market exchange rates. For some time the United Nations used PPP as a basis of estimates; in 1993, this approach was also used in the IMF's World Economic Outlook. See World Economic Outlook, May 1993, pp. 116-19. See also Economist, May 15, 1993, p. 83. 6. World Bank, World Development Report 1991 (New York: Oxford University Press, 1991), pp. 204-205. 7. International Finance Corporation, EmergingStockMarkets Factbook 1993 (Washing- ton: International Finance Corporation, 1993), pp. 20-21. 8. "No. 1 on Agenda: The Limits to Promoting Growth," New York Times, July 6, 1992, p. A7. 9. Harold Nicolson, Diplomacy (London: Thornton Butterworth, 1939), p. 41. 10. International Monetary Fund, World Economic Outlook, October 1993, pp. 104-12. 11. Partha Dasgupta, An Inquiry into Well-Being and Destitution (Oxford: Clarendon, 1993), especially pp. 104-28. 688 INTERNATIONAL MONETARY COOPERATION

12. de Vries, The International Monetary Fund 1972-1978, Vol. 1, p. 533. 13. Jacob Viner, International Economics (Glencoe, Illinois: Free Press, 1951), p. 16. See also William Y. Elliott, The Political Economy of American Foreign Policy: Its Concept, Strategy, and Limits (New York: Henry Holt, 1955), p. 20. 14. See Manuel Guitian, "The Issue of Capital Account Convertibility: A Gap Between Norms and Reality," paper presented at a seminar on currency convertibility, Marrakech, Morocco, December 16-18, 1993. 15. See Richard N. Cooper, "A Monetary System for the Future," Foreign Affairs, Vol. 63 (Fall 1984), pp. 166-84. Richard N. Cooper, "What Future for the International Monetary System?" in International Financial Policy: Essays in Honor of Jacques ]. Polak, ed. by Jacob A. Frenkel and Morris Goldstein (Washington: International Monetary Fund and De Nederlandsche Bank, 1991), pp. 125-49. Ronald I. McKinnon, An Interna- tional Standard for Monetary Stabilization (Washington: Institute for International Econom- ics, 1984). Ronald I. McKinnon, "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, Vol. 31 (March 1993), pp. 1-44. 16. See Paul de Grauwe, Hans Dewachter, and Marc Embrechts, Exchange Rate Theory: Chaotic Models of the Foreign Exchange Markets (Oxford: Basil Blackwell, 1993). 17. Harry G. Johnson, "The Bretton Woods System, Key Currencies and the 'Dollar Crisis' of 1971," Three Banks Review, Vol. 94 (June 1972), p. 5. For a different analogy, see Knut Borchardt, "Can Societies Learn from Economic Crisis?" German Yearbook on Business History 1984 (Berlin: Springer Verlag, 1985), pp. 13-24. 18. See Barbara Stallings, "International Influence on Economic Policy: Debt, Stabiliza- tion, and Structural Reform," in The Politics of Economic Adjustment, ed. by Stephan Haggard and Robert R. Kaufman (Princeton, New Jersey: Princeton University Press, 1992), pp. 52-53. 19. Robert Solomon, "International Monetary Reform: The Future Is Not What It Used To Be!" in The Future of the International Monetary System: Change, Coordination or Instability, ed. by Omar F. Hamouda, Robin Rowley, Bernard M. Wolf (Armonk, New York: M.E. Sharpe, 1989), p. 10. Otmar Issing, Internationale Wdhrungsordnung (Tubingen: J.C.B. Mohr, 1991), pp. 50-51. 20. For example, Middle East Economic Digest, December 18, 1992. 21. For example, Fusae Ota, Hiroya Tanigawa, and Tasuke Otani, "Russia's Economic Reform and Japan's Industrial Policy," Ministry of International Trade and Industry, Working Paper, Tokyo, 1992. 22. This case has been powerfully argued by Francois Bourguignon and Christian Morrisson, Adjustment and Equity in Developing Countries: A New Approach (Paris: Organi- zation for Economic Cooperation and Development, 1992). Bibliography

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