GLOBAL

GOVERNANCE AND
THE BRETTON
WOODS SYTEM
Aspects of Global Governance

A broad process of interactive decision-making at

the global level. It hovers between Westphalian
state-system and the idea of world government.

Although there are binding rules and norms, these

aren’t enforced by a supranational authority

Liberal theorists argue that is a definite trend in

favour of global governance, reflecting growing
interdependence

The trend towards global governance has been

particularly prominent in the economic sphere
The Evolution of Bretton Woods Institutions

Delegates at the 1944 conference in Bretton Woods,

The Evolution of Bretton Woods Institutions

Since 1945, emergence of global economic

governance through a web of multilateral
agreements, formal institutions and informal
networks.
Bretton Woods agreement was executed just before
World War II.
The aim was not to return to the economic
instability and chaos of the interwar period.
In Aug. 1944, the USA, the UK and 42 other states
met at UN Monetary and Financial Conference at
Bretton Woods, New Hampshire.
To formulate the institutionalarchitecture for
the postwar international financial and monetary
system.
The Evolution of Bretton Woods Institutions

John Maynard Keynes (centre) played a leading role in the

formulation of the Bretton Woods agreements and instrumental in
the establishment of the IMF.
The Evolution of Bretton Woods Institutions

India's delegation, led by Jeremy Raisman, included notable figures such as

CD Deshmukh, AD Shroff, RK Shanmukham Chetty, BK Madan, and
Theodore Gregory.
The Bretton Woods System

The Bretton Woods system relates to the postwar

institutional architecture of the financial and
monetary system
It was based on three bodies: the IMF, the World
Bank, and the General Agreement on Tariffs and
Trades (GATT).
It initially supervised the world economy largely
through the maintenance of stable exchange
rates
The system broke down in the early 1970s as
floating exchange rates replaced fixed exchange
rates.
The Bretton Woods System: New
Monetary Order
IMF: sought to maintain stable exchange rates.
Fixing all currencies to the value of US dollar.
WB: provide loans for countries and development.
GATT: multilateral agreement sought to advance the
cause of free trade by bringing down tariff levels.
Faith in liberal economic theories, virtues of open
and competitive international economy.
Bretton woods was shaped by the fear that an
unregulated international economy is inherently
unstable and crisis prone. Eg. The Great
Depression.
Bretton woods reflectedan attempt to establish a
Keynesian-style regulative framework for the
international economy.
The Bretton Woods System: IMF
The Bretton Woods System: IMF

Encourage international monetary cooperation by:

- Removing foreign exchange restrictions
- Stabilizing exchange rates
- Facilitating multilateral payment systems
among member countries-
Bretton Woods established a system of fixed
exchange rates based on the gold exchange
standard, with the US dollar as the anchor.-
International business would thrive in stable
conditions, free from currency fluctuation fears
affecting import and export values.-
IMF increasingly focused on lending to: -
Developing countries - Post-communist states
(transition countries) after the Cold War.
 IMF: A Critique

From the 1980s, IMF loan conditions aligned with the

Washington Consensus, requiring recipient countries to
implement ‘structural adjustment’ programs based on
market fundamentalism.
This involved removing trade barriers, allowing free
capital flow, liberalizing banks, cutting government
spending (except on debt), and privatizing sellable
assets for foreign investors.
Structural adjustment programmes destabilized
economy; impact of ‘shock therapy’ market reforms by
reducing government spending and rolling back welfare
provision, increased poverty and unemployment.
Economic openness exposed fragile economies to
intensified foreign competition and expanded the
influence of foreign banking and corporate interests.
IMF has followed the dictates of USA.
The Bretton Woods System: World Bank

It is a partner organization of IMF; postwar recovery

in Europe, 1970s onwards, focused on the
developing world and after the collapse of
communism, transition countries.
It provides low-interest loans to support major
investment projects, as well as by providing
technical assistance.
McNamara Phase (1968): WB shifted its
priorities towards basic needs underlying causes of
poverty, population control, education and human
rights.
A.W. Clausen Phase (1980): WB towards
structural adjustment programmes: emphasis on
deregulation, privatization, stress on export-led
growth rather than protectionism.
 World Bank: A Critique

Development disparities grew; structural

imbalance in a trade; developed countries to grow
rich by selling high-price, capital-intensive goods,
often in highly volatile markets.
WB led to a substantial transfer of wealth from
peripheral areas of the world economy to its
industrialized core.
 The World Trade Organization

WTO was formed in 1995 as a replacement for GATT that

was established in 1947.
GATT only emerged as the basis of the postwar international
trading order as a result of the failure to establish the
International Trade Organization (ITO).
ITO was proposed in 1945 by the UN Economic and
Social Council. Its implementation was abandoned once
President Truman failed to submit its founding treaty, the
Havana Charter (1948), to the US Senate for approval,
fearingthat the Senate would regard the organization as
threat to US sovereignty.
GATT was an agreement amongst member countries to
apply the multilateral principle of non-discrimination and
reciprocity to matters of trade.
Each country had to concede most favoured nation status to
all trading partners.
 Limitations of GATT

GATT existed only as a set of norms and rules,

acquiring the semblance of an institutional
character only with the establishment in 1960 of
GATT council.
Its focus was restricted to the reduction of tariff
barriers against imported manufactured goods.
GATT had limited influence over agriculture and
growing service sector of the economy.
GATT procedures for settling disputes between
trading partners were also weak.
During 5th, 6th, 7th rounds of Negotiation in
Kennedy round, Tokyo round and Uruguay rounds –
tariffs on manufactured goods were brought down.
From 40 % tariff rate on manufactured goods in
1947, the rates were brought down to about 3 % in
 Transition from GATT to WTO

In Uruguay round (1993); establish WTO; changing

international trading system in the 1980s;
neoliberalism and acceleration of globalization.
Advance the cause of free trade through a more
powerful trade organization with broader
responsibilities.
WTO was extended to incorporate a renegotiated GATT
1994, agreements on the trade in services (GATS) and
on the protection of intellectual property rights (TRIPS).
Under GATT, settlements of disputes required the
agreement of all members of a disputes panel.
WTO, settlement judgments only be rejected if
opposed by all members of the Dispute Settlement
Body.
 WTO – New Responsibilities

It also included agriculture and textiles within

WTO responsibilities as a concession to
developing countries.
WTO appeared to be more democratic body than
IMF or the World Bank.
Decisions were made within the WTO on a
‘country, one vote’s basis, and usually require
only a simple majority.
This was in favour of developing countries,
which constitute more than two-thirds of the WTO
members.
Total member countries: 164
Reforming The Bretton Woods
System?
Supporters argue that the IMF, the World Bank,
and the WTO have contributed to a remarkable
expansion of the global economy

Critics claim that they have deepened global

disparities and helped to produce an unstable
financial order

The 2007-09 financial crisis raised concerns about

the effectiveness of global economic governance

There are major obstacles to reform, not least the

continuing dominance of neoliberal principles in
many countries, and the more diffuse location of
global power