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BRETTON WOODS
INSTITUTIONS
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The Bretton Woods Institutions
The World Bank and its sister organization, the
International Monetary Fund (IMF), known as the Bretton Woods Institutions, were created
in 1944 and have become the largest lenders to governments of developing countries. Here
are some background papers on their history, policies and impacts on people and the
environment:
What are the Bretton Woods Institutions?
The World Bank and its sister organization, the
International Monetary Fund (IMF), were created at Bretton Woods, New Hampshire in 1944.
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The World Bank
The World Bank's primary mandate is poverty alleviation.
Originally created to finance the reconstruction of war-torn Europe, the World Bank has
become the primary financier of development projects in the Third World and has also
become the Third World's largest creditor. Together the countries of the Third World owe
the World Bank more than US$160 billion (Annual Report, 1994)
The World Bank is currently the largest multi-national
lending and technical agency dealing with Third World development. As the world's leading
development agency, the World Bank has a wide-ranging mandate, from consolidating loans
for large-scale development projects to providing structural adjustment loans and sectoral
adjustment loans to developing countries experiencing balance of payments problems.
The World Bank is owned jointly by Western and Third World
governments and now consists of four organizations:
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IBRD, the International Bank for
Reconstruction and Development. Created in 1944, the IBRD provides development loans at
just below commercial rates to developing countries and the former Soviet Union. Loans
guaranteed by creditor governments allow the World Bank to borrow in capital markets with
a triple-A rating. Subscriptions to IBRD by the 176 member countries are made up of
paid-in-capital (a down payment in effect, making up only a small portion of the total)
and callable capital (a promise to pay, if necessary);
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IDA, the International
Development Association - Created in 1960, and drawing on funds made up of taxpayer
dollars from its 156 member countries, the IDA provides long term loans at no interest to
the poorest countries in the world. These loans are earmarked for infrastructure projects
including dams, open pit mines, and road construction. Financing comes from triennial
"replenishments" from donor governments.
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IFC, the International Finance
Corporation - Created in 1956, the IFC provides financing for private sector growth in
developing countries.
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MIGA, the Multilateral Investment
Guarantee Agency - Created in 1988, MIGA provides loan guarantees to donor country private
enterprise wishing to invest in developing countries. |
Colloquially, most references to the "World Bank"
refer either to the IBRD alone or to the IBRD and IDA.
GOVERNANCE
The World Bank is run by a Board of Governors, made up of
each member country's finance minister or central bank governor. The Governors appoint
Executive Directors who are responsible for determining World Bank policies and approving
individual loans.
Each of the top five contributing countries (U.S., Japan,
Germany, France and Britain) appoints its own individual executive director. The remaining
171 member countries share 19 executive directors among them.
The World Bank's board of executive directors approves
individual projects for financing. Although each director has only one vote, many
directors also represent other, mostly borrowing members. Directors must therefore
simultaneously promote the interests of both creditors and borrowers interests that may
often conflict.
Traditionally, World Bank Executive Director voting is kept
secret.
According to custom, the Bank's president is nominated by
the U.S. president and is an U.S. citizen. The current President is James Wolfensen.
CONTRIBUTIONS
The largest contributors to the World Bank are the U.S.
(17.9%), Japan (7.43%), Germany (5.74%), France and Britain (5.5% each).
The World Bank has lent $313 billion to its member countries
and is the Third World's largest creditor: together the countries of the Third World owe
the World Bank more than US$170 billion.
Analysts have noted that the guarantees or callable capital
portion of IBRD subscriptions expose member country taxpayers to significant financial
risks. Should more of the World Bank's borrowers fall into arrears, a very real
possibility given that internal reviews by Bank management have classified 37% of the
World Bank's loan portfolio as "high risk", the Bank could be forced to ask
member countries for the US$ billions in callable capital owed it.
The Bank's annual administrative budget alone is over US$1.4
billion and the Bank has recorded a profit every year since 1947. In 1994, this profit
amounted to US$1.05 billion. In 1994 the World Bank's outstanding loans totalled US$109.3
billion, not including the US$62.3 billion owed to the International Development
Association.
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THE INTERNATIONAL MONETARY FUND
The International Monetary Fund (IMF) is the central
institution of the international monetary system. It has two main roles. It exercises a
surveillance function by monitoring the economic policies of all the member countries and
providing policy advice. It also provides financial assistance to members faced with
balance of payments problems.
These loans are disbursed on the condition that debtor
countries adhere to the IMF's economic advice, generally known as Structural Adjustment
Programmes. At the end of 1994, 179 countries were members of the IMF.
STRUCTURE
Each country makes cash subscriptions (called a
"quota") to the IMF, the amount of which determines a country's votes in
operating the fund and the amount it is allowed to borrow. Countries may borrow up to 25%
of their quota with no questions asked. Further borrowing, however, requires submitting to
IMF economic reforms.
GOVERNANCE
The U.S., Japan, Germany, France and Britain control the IMF
with 40% of the votes between them.
According to tradition the president of the IMF is a
European. The current President is Michel Camdessus of France.
CONTRIBUTIONS
In total, the IMF has lent $152 billion to its member
countries.
Source: The
World Bank, Annual Report, 1994, appendices.
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The World Bank: Banking on Disaster?
Backgrounder
An international public is beginning to demand some
accountability for a list of expensive failures of the Bretton Woods Institutions (the
World Bank and the IMF). These institutions have been the recipients of enormous infusions
of taxpayer money, garnered from the governments of G7 and European Union countries.
The projects the Bank finances have been responsible for the
destruction of forests, fisheries and river banks; they have led to the displacement or
forced resettlement of over two and a half million people; they are frequently not kept to
minimum environmental performance or cost containment standards; as a result, they stand
for the potential misspending of millions in member country public monies and taxpayer
dollars.
The Bank and the IMF seem increasingly out of touch with
growing criticism of their economic, social, and environmental performance.
The collapse of the gold standard and the rise of an
integrated global economy have caused the World Bank to move towards loan guarantees for
private investment through private capital facilities such as the IFC (International
Finance Corporation) and the MIGA (Multilateral Investment Guarantee Agency).
However, the Bank is supported, ultimately, by taxpayers in
G7 countries.
Taxpayer money should not be used to finance or to back up
risky private sector transnational ventures, especially those that lead to environmental
destruction and increased opportunity for human rights violations.
Increasingly, the international public feels that these
multilateral agencies should step into a gap and invest in sustainable agriculture,
renewable energy sources, developing public transportation infrastructures, and
appropriate technology transfers - all ventures unlikely to be funded by private capital.
Following is a brief survey of the ways in which recent
World Bank projects have failed to alleviate poverty, foster sustainable development, or
maintain any sense of environmental responsibility.
A. World Bank Projects - Poverty and
Environmental Destruction
Some of the most devastating projects include:
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The Sardar Sarovar dam, one of
3,000 planned for the Narmada River in India. This dam has begun to displace more than
240,000 people from their land. Most have been moved into squalid resettlement sites with
poor land, no clean water and no electricity.
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The Polonoroeste Frontier
Development Scheme started a colonisation process in the Brazilian rainforest by
inundating it with settlers. They proceeded to cut down an area of the forest the size of
Great Britain.
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Thailand's Pak Mun dam project
has completely destroyed fisheries along the Mun River, reducing thousands to abject
poverty and forever altering the diet of many more who live downstream from the river in
Laos, Cambodia and Vietnam.
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Singrauli in India is home to
twelve open pit coalmines, which have polluted water, food crops and fish stocks. More
than 300,000 people were resettled to complete the project. Many live in slum conditions
lacking secure land tenure and basic sanitation facilities. The Indian press called the
area "the lower circles of Dante's Inferno." |
A recent World Bank review of involuntary resettlement found
that the World Bank had forcibly resettled 2.5 million people since 1986 alone, and
projects currently in the portfolio will displace another 2 million.
Moreover, despite World Bank policies that state people
should be left at least as well off after resettlement as before, the review could not
find a single example of a Bank-financed resettlement plan in Latin America or Africa
where the Bank's guidelines had been properly implemented. [1]
B. World Bank Failed Loans
- Project failures are not isolated accidents. Disasters like
Sardar Sarovar, Pak Mun, and Singrauli are not isolated examples. Instead, failures are
endemic throughout the World Bank project portfolio. A 1992 internal review of the World
Bank's $140 billion loan portfolio by then Bank Vice-President Willi Wapenhans found that
more than one-third of World Bank projects were failing, and that the Bank's portfolio is
in "steady and pervasive" decline. [2]
- Compliance with loan covenants is rare. The Wapenhans report
also found that only 22% of legal loan covenants, especially financial covenants (such as
failure to undertake proper financial audits) are in compliance. Mr. Wapenhans called this
level of non-compliance "gross" and "overwhelming".
- New projects not sound ones. The Wapenhans report also
identified a tendency to approve new loans to the detriment of project quality, citing a
"pervasive preoccupation with new lending" within the World Bank. The pressure
to lend was also identified in a 1992 report which noted that "the Bank tends to
focus on quantity (volume of loans) rather than quality (results)." The more projects
a Bank staff member can secure loans for, the greater the staff member's prestige within
the Bank itself. This leads to lowered standards for project approval.
According to Wapenhans, this approval culture has led staff to perceive project appraisals
both as marketing devices for securing loan approval and as opportunities for achieving
personal recognition. "Appraisal", observed Wapenhans, "becomes
advocacy."
C. World Bank Borrowers - "High
Risk"
The consequences of these lax standards for project approval
have been predictable. Since 1980 there has been a significant deterioration in the
quality of the portfolio. According to notes from an informal World Bank Board of
Executive Directors seminar, by 1992 more than one-third of Bank borrowers were either
"...facing or in serious danger of facing, severe financial pressures which could
pose a risk of protracted arrears to the Bank."
Clearly a portfolio of such poor quality poses significant
risks for the Bank's triple A credit rating, and thus for taxpayers who guarantee World
Bank bonds. [3]
D. World Bank Credibility - Cost Overruns
and Lavish Expenditures
- Besides these commitments to shaky projects, there have been
a number of internal embarrassments for the World Bank.
In 1993-94 huge cost overruns in the construction of the new World Bank Headquarters in
Washington, DC led to an internal inquiry and disciplinary measures against Bank staff.
Originally estimated at US$206.5 million, the project came in nearly $100 million over
budget.
In discussing the incident, bank spokespersons said: "Cost estimates weren't updated
frequently enough, insufficient attention was paid to budget ceilings, and project
management failed to keep senior management and the board properly informed." [4]
- Moreover, World Bank staffs are among the highest paid civil
servants in the world.
The World Bank's Washington headquarters employ 6,338 regular and fixed term staff.
Average remuneration - salary plus benefits - in 1994 was US$134,400. In addition, World
Bank salaries are generally tax-free.
In 1993 the Economist Magazine found that World Bank salaries were eclipsed only by those
of the European Bank for Reconstruction and Development and which has come under severe
criticism from donor countries for the opulence of its headquarters and extravagant
spending on salaries. [5] [6]
E. Questionable World Bank Reforms
- In response to growing international criticism, the Bank
appointed its own 'Inspection Panel'.
The U.S. Congress has been especially critical: it voted in 1994 to withhold a portion of
its 1995 funding to the Bank pending significant reform. Yet the Inspection Panel does
little to make the World Bank more accountable, transparent or democratic.
The Panel itself has little clout within the Bank: it carries on independent evaluations
of the social and environmental impacts of World Bank projects, but its recommendations,
which may include project adjustment or cancellation, are fed into the Bank's Board of
Executive Directors who have the power to ignore them.
The Board has not rejected a single project put before it since 1944.
- The new information policy does little to increase access by
those directly affected by projects.
The information policy still leaves the disclosure of most documents to the discretion of
Bank staff, the Board of Executive Directors, or borrower governments. Therefore, the
Bank, not the public, continues to control ultimate disclosure decisions. Canadian
taxpayers, as a result, have no right to know how their billions are being spent. [7]
Endnotes
[1] "Resettlement and Development:
The Bankwide Review of Projects Involving Involuntary Resettlement 1986-1993." The
World Bank, Environment Department. April 8, 1994.
[2] "Effective Implementation: Key to
Development Impact: Report of the World Bank's Portfolio Management Task Force."
(Wapenhans Report), 1992.
[3] "Informal Board Seminar on the
Status of the IBRD Portfolio." The World Bank, March 6, 1992.
[4] "World Bank Building Costs Extra
$100 million," Globe and Mail, July 16, 1993.
[5] World Bank salaries have been
calculated from the World Bank's 1994 annual report. Total Staff costs are found on pg.
161. The number of staff is found on pg. 160.
[6] "Affluent Apparatchiks" The
Economist, April 24, 1993.
[7] Patricia Adams, "New Rules for
Secrecy" Down to Earth, December 15, 1993.
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Structural Adjustment Programmes
Backgrounder
Structural adjustment programmes (SAPs), were originally
designed to stabilise developing country economies. Instead, they have imposed harsh
economic measures, which deepen poverty, undermine food security and self-reliance and
lead to unsustainable resource exploitation, massive environmental destruction, and
population dislocation and displacement. Given the mounting evidence, Northern countries
must reconsider the appropriateness of using their lending and aid programmes to support
the structural adjustment regimes of the World Bank and IMF.
What are SAPs?
"Structural adjustment" is the name given to a set
of "free market" economic policies imposed on countries by the World Bank and
International Monetary Fund (IMF) as a condition for receiving financial assistance. SAPs
are designed to improve a country's foreign investment climate by eliminating trade and
investment regulations, boosting foreign exchange earnings by promoting exports, and
reducing government deficits through cuts in spending.
The kind of structural adjustment programmes referred to here are programmes developed by
the World Bank and International Monetary Fund (IMF) in the early 1980s. These programs
attach a number of stringent conditions to cash transfers. They have offered the Bank and
the IMF a means of gaining stronger influence over the economies of debt-strapped
governments in the South.
New loans and aid are given only if the debtor nation
implemented IMF/World Bank-sanctioned reforms. In order to continue receiving funds,
countries already devastated by debt obligations have little choice but to adhere to
conditions mandated by the IMF and World Bank. In addition, most donor countries,
including Canada, will not contribute bilateral assistance to any developing nation unless
that country has accepted these conditions and adopted structural adjustment programmes.
Although SAPs differ from country to country, they typically
force indebted countries into adopting a series of harsh economic measures, which include:
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a shift from growing diverse food
crops for domestic consumption to specialising in the production of cash crops or other
commodities for export;
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abolishing food and agricultural
subsidies to reduce government expenditures;
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deep cuts to social programmes,
usually in the areas of health, education and housing, and massive layoffs in the civil
service;
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currency devaluation to make
exports cheaper but imports more expensive;
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liberalization of trade and
investment and increases in interest rates to attract foreign investment;
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privatisation of government-held
enterprises. |
Australians, who will soon feel the severe impacts from
recent Federal and State budgets, will begin to identify with the citizens of developing
nations who suffer SAP cutbacks to health, education and other basic social programmes.
The Argument for SAPs
The World Bank and IMF argue that SAPs are necessary to
bring a developing country from crisis to economic recovery and growth. They believe
economic growth, driven by foreign investment, to be the key to development. The resultant
wealth, they claim, will eventually "trickle-down" or spread throughout the
economy and eventually to the poor. SAPs are not designed to achieve social well being;
multilateral agencies and other donors simply hope that applying free market principles to
a developing economy will improve social welfare in the process.
This process of adjustment, as described by many World Bank and IMF officials to
developing countries, is one of "sacrifice," of "present pain for future
hope."
Arguments Against SAPs
Non-governmental organizations (NGOs), grassroots
organizations, social movements, church groups, economists, social scientists and a number
of United Nations agencies have rejected the narrow conception of economic growth as the
link between adjustment and the achievement of social objectives.
As long as social objectives remain, at best, secondary goals of SAP policies, the goal of
equitable resource and wealth distribution will remain marginal and incidental. They
charge that SAP policies have contributed to a significant redistribution of income and
wealth from poor to rich both nationally and internationally.
The objection to SAPs rests on the following bases:
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They rely too heavily on
unfettered free markets as the essential engine of growth;
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They over emphasise restoring the
balance of payments, rather than adopting a more just and equitable approach to resolving
the debt crisis;
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SAPs lack transparency,
accountability and public participation in their design and implementation;
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A fixation on deregulation,
privatisation and dismantling of the state, undermining the state's sovereignty and
limiting its role for socio-economic intervention;
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SAP implementation pays little
attention to private wealth and income concentration and the exclusion of the poor from
decision and control over resources. It ignores both private sector inefficiency and the
political repression needed to impose SAPs through more authoritarian states, thereby
undermining democracies and democratic practice;
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SAPs hurt the poor
disproportionately through deep cutbacks in social programmes. Poverty alleviation
programmes designed to cushion the effects of adjustment cannot reverse the impact that
SAP policies play in contributing to the general decline in the social sector.
Women are particularly affected by cutbacks to social programmes. User fees,
privatisation, massive layoffs and cutbacks of social services have led to deepening
malnutrition, hospital closures, and deepening poverty;
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SAPs rely too much on investment
that is short-term, concentrated in the export sector, neglecting and even undermining
food security and self-reliance;
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They mandate drastic currency
devaluations, which radically diminish the buying power of local people's wages, sometimes
from one day to the next, so that many basic necessities become inaccessible. |
SAPs, as currently designed and implemented, violate the UN
Convention on the Rights of the Child, the UN Declaration on the Right to Development, and
Convention of the Elimination of Discrimination Against Women.
There remains no strategy for adjusting the whole world
economy, which includes the Northern economies, to the priority goals of equitable and
sustainable development and poverty reduction through more equitable trade policies, debt
reduction, technology transfer and increased concessional transfers to the poorest
countries;
SAPs and Their Ecological Consequences
Despite claims to the contrary, the World Bank and IMF have
paid little or no attention to the environmental impact of SAPs. A number of comprehensive
studies have clearly demonstrated how SAP policies have led to increased environmental
destruction, dislocation and displacement. SAP policies call for increased exports to
generate foreign exchange to service debt.
Developing countries' most important exports, including
timber, oil and natural gas, minerals, cash crops, and fisheries are all derived from
natural resource extraction. The resulting acceleration of resource extraction and
commodity production is not ecologically sustainable.
Deforestation, land degradation and desertification, soil
erosion and salinization, biodiversity loss, increased production of greenhouse gases,
increase in water-borne disease, the flooding of immense tracts of productive land,
air and water pollution, are but a few of the long term environmental impacts that can be
traced to the imposition of SAPs. In addition, SAP induced government cutbacks mean less
money for enforcement of environmental regulations.
Gender and SAPs
Most studies conclude that women are bearing a
disproportionate share of the burdens imposed by SAPs. The macro-economic thinking on
which SAPs are based takes little account of the sexual division of labour, of resources
within the household, and how shifts in entitlements and incentives have a dramatic impact
on women's labour. Women, primarily responsible for child rearing, are heavily dependent
on health services; this, combined with their very limited access to productive resources,
places them at a particular disadvantage when public spending on health is reduced.
The introduction of user fees in hospitals and clinics has
cut attendance at such facilities. As a result, maternal and infant mortality rates have
risen sharply. SAPs promote the production of export-oriented crops; these tend to be
grown by men. This leaves women with little support and marginal land and fewer resources
to grow food crops for their family's consumption.
Compensatory programmes have been put in place recently as
an attempt to alleviate the impact of SAPs on the poor, but they tend to bypass women.
Most structural adjustment programs, in fact, are designed around the assumption that
women (and children) are dependents of men. Since compensatory programs are based on
existing channels of distribution within communities and households, and since these
channels often discriminate against women, they will never have any real access to any new
resources received through them.
Towards an Alternative
Supporters of SAPs often explain that while SAPs are
difficult to implement there simply is no alternative. The World Bank and IMF have indeed
succeeded over the 1980s in reducing the development options for virtually every Southern
country to one: the adoptions of SAPs.
There have been a variety of alternatives suggested. The UN
Economic Commission for Africa provided a comprehensive and credible alternative to SAPs
in 1989.
The African Alternative Framework called for
"adjustment with transformation" which called for a reduction in the continent's
reliance on external trade and financing, for the promotion of food self-sufficiency and
for greater popular participation in economic planning and decision-making.
The Third World Network and Freedom from Debt Coalition have
proposed numerous alternative policies in the areas of international trade and sustainable
development. Some specific alternatives for reform include:
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promoting diversification in the
products that Southern countries export and increasing processing capacity. This would
coincide with the recognition of providing some protection to infant industries and the
promotion of greater regional trade;
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recognising the need for states
to play a greater role in facilitating the diversification away from traditional
commodities, determining and promoting investment priorities;
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economic policies and planning
which include a gendered analysis of the various options;
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policies that take into account
environmental impacts and include sustainable natural resource use that benefits local
communities;
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an emphasis on non-price
structural reforms such as land reform, institutional reforms to increase democratic
practice and accountability;
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at the international level,
measures to reduce the debt problems of poorer countries, regulate capital markets and
address unfair trading practices. |
What is urgently required is an opening up of the political
and economic space so those alternatives, such as those listed above, can be seriously
considered and implemented. The greatest obstacle to this continues to be the total
control over the development debate currently exercised by the Bank and IMF.
Recommendations
The principles behind sustainable development require that
Governments move away from the paternalistic view implied by "aid,"
"assistance" and "leverage" toward a more appropriate, cooperative
approach that reflects shared interests and reciprocal responsibilities.
Constructive partnerships should be based on negotiated
"frameworks for policy dialogue," involving the governments as well as
intergovernmental bodies and elements of civil society.
Governments should seek to replace an approach based on
policy leverage and support for Structural Adjustment Programmes with "Sustainable
Development Agreements," that are the outcome of a broadly democratic and transparent
dialogue which includes all social sectors concerned, particularly popular organizations
and NGOs. These agreements would include:
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the promotion of
"soft-path" projects;
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guarantees for economic, social
and political rights; employment and income distribution;
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environmental sustainability;
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gender and racial equity. |
Such "Sustainable Development Agreements" have
been successfully negotiated between the Dutch government and governments of Costa Rica,
Benin and Bhutan. The promotion of these agreements, however, should not be seen in
isolation from the need to work at resolving other issues such as the debt crisis,
reforming international financial institutions and unfair trade.
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