Bretton Woods was undoubtedly an influential world event. In the Bretton Woods in New Hampshire, USA, delegates from the Allied nations met from the 1st to the 22nd July 1944 to discuss economic policy at the United Nations Monetary and Financial Conference, which came to be known just as the Bretton Woods Conference. Leading to the foundation of the International Monetary Fund (IMF), and what was to become the World Bank, it marked a significant shift in world political and economic power towards the US, and away from the old European colonial powers. These bodies, in turn, were regulated by the Bretton Woods system, with fixed exchange rates between foreign currencies and the dollar, and the dollar with gold. In the end, President Nixon ended this program in 1971. This left the Bretton organisations without a Bretton system to depend on, leaving the IMF and the World Bank somewhat rudderless. It was not until the 1980s that they began focusing clearly on a new goal, that was to set direction for the next decade: development.
Throughout the 1980s, both Bretton organisations focused heavily on the conventional theory of development. First, there is a traditional society; over time, institutions such as banks and a merchant class evolve; next, the economy begins to industrialise; more and more people become involved with manufacturing; and then the economy is driven by consumer demand from newly-enriched factory workers. This is economist Walt Rostow’s classical theory of development and is the route the IMF and World Bank believed was necessary. At the same time, many developing countries were borrowing money from international banks, which were flush with cash after oil-producing states were investing their profits into the banking sector. These developing economies were booming, with high levels of economic growth. Then the interest rate rose, and they could no longer afford to repay their loans. As a result, all of these developing countries were about to default on their loans, when the IMF and World Bank swooped in. In exchange for restructuring and reducing their loans, the IMF and World Bank offered an intermediary cheap loan. However, the Bretton organisations instructed that these developing economies had to undergo ‘structural adjustment’: there had to be more free trade, less regulation, fewer government subsidies, lower government spending, and lower taxes on corporations. All of this was in the name of reducing the deficit, and providing the conditions for development to take off - the ‘preconditions’ stage in Rostow’s cycle.
So what effect did this have in the long-term? In Latin America, where a more severe debt crisis had hit in 1982, many people lost faith in their government, which appeared bound to the whims of foreigners; as well as this, there was a lack of economic growth, and inflation, so unemployment grew rapidly. For this reason, the 1982-1994 period is often referred to as Latin America’s lost decade.
In Africa, the other continent where significant World Bank ‘structural adjustment’ loans were made, it is notable that real economic growth was actually negative throughout the 1980s, meaning the population was actually becoming worse off. Despite the best intentions of the IMF and the World Bank, the policies they introduced seem likely to have hurt those they were meant to help, pointing towards these bodies being a washout.
But it is important to remember that the Bretton organisations are constantly learning from their mistakes. Since then, the IMF and the World Bank have moved away from the ‘one size fits all’ policy of the 1980s towards providing specialised, tailored assistance to the individual issues that each developing state faces. After all, the concerns of Brazil are very different from those of Burkina Faso, for example. So, despite failing during the 1980s, both organisations have learned from the ‘washout’ experience. And in the future, perhaps they can achieve the ultimate ‘win’ of eliminating poverty through development.
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