The Bretton Woods Twins in the Era of COVID-19: Time for an Exit Strategy for the Global South?

13 October 2020 by Focus on the Global South

As they mark their 76th year, the International Monetary Fund and the World Bank have been presented with a grand opportunity, not to save the world, but to salvage their tattered reputation.

The Fund enters the annual IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
-World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

meetings with a big image problem. Covid-19 presented the Fund with a chance to clean up its image, and it boasted of a $1 trillion war chest that Managing Director Kristalina Georgieva said it was ready to disburse to meet a “once in a lifetime pandemic.” However, developing countries have been, for the most part, circumspect in their response to the Fund beckoning them to borrow.

The World Bank, for its part, enters the fall meeting backing the IMF in spurning the widespread call for debt cancellation, with its new president, David Malpass saying the financial markets won’t like that. It is also facing charges of hypocrisy: on the one hand, warning that the world faces a world hotter by 4 degrees at the turn of the century; on the other, still engaging in investments in coal plants. It is also bogged down in controversies over its engagement in the REDD+ initiative, which threatens to dispossess forest communities throughout the world in the name of saving forests as carbon sinks.

The policies of the Fund and Bank continue to respond mainly to the interests of the United States and Europe, which hold an effective controlling share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of voting power in the two institutions. The US and Europe also continue to exercise the feudal privilege of appointing the heads of the Bank and the Fund, respectively.

There have been strong calls for reform of the policies and governing structures of the Fund and the Bank over the last 50 years. The consistent stonewalling of real change by the hegemonic powers calls into question the strategy of demanding reforms on the part of the countries of the global South. Probably more productive at this point would be strategizing for a collective exit from the two institutions and exploring ways of building up alternative institutions grounded in the principles of mutual respect, genuine cooperation, and equality to coordinate international finance, trade, and development assistance in an era of climate crisis. Current geopolitical and geo-economic realities might, in fact, make the possibility of success greater for such an approach.

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