Why the Bretton Woods Institutions Need Policy Re-alignment in Africa
The Changing Realities of African States: Why the Bretton Woods Institutions Need Policy Re-alignment
By Morris Madut Kon, Kyoto, Japan
Introduction
Monday, June 25, 2018 (PW) — In the aftermath of a devastating World War II, nations were left crippled by debts, overspending in acquisition of military hardware and hence barely able to stand on their feet. There was a desperate need for reconstruction and restoration of international trade flows. An urgent meeting dubbed United Nations Monetary and Financial Conference (better known as the Bretton Woods Conference- named after a US town in New Hampshire where talks took place) was convened between July 1st and 22nd, 1944, attended by representatives from 44 countries.
The United States delegation was headed by Henry Morgenthau and Harry White, the British delegation by Lord John Maynard Keynes. These two delegations directed the work of the Conference and their countries maintained a significant influence on the institutions. While most of the proposals initially put forth were ultimately abandoned, one of the them saw the light of the day, id est, the creation of the IMF (International Monetary Fund) and the IBRD (International Bank for Reconstruction and Development), otherwise known as World Bank.
Dominance over Global Financial Flow
While the main (alleged) objectives of the institutions initially included prevention of a recurrence of economic crises like the crash of 1929 and ensuring world leadership in the post-war era, the major global powers at the time, especially the US and Britain had another agenda- to dominate international financial flows and world economic order. Eric Toussaint (2006) opines that the structuring of the institutions “clearly illustrates the will of certain major powers to exert domination over the rest of the world”. In 1947, the US and UK together had almost 50% of the votes (34.23% for the United States and 14.17% for the United Kingdom.
Eleven most industrialized countries held more than 70% of votes. All the countries of the African continent together held no more than 2.34%. Only three African countries had voting rights because essentially the rest were still under colonial rule. These three countries were: Egypt (0.70% of votes); the Union of South Africa (1.34%) governed by a white racist power that would introduce apartheid a year later, and Ethiopia (0.30%). In a word, black Africa under a black government (the Emperor Haile Selassie) held just one third of one per cent of the votes (Toussaint, 2014).
74 years later not so much has changed, except the expansion of IMF’s mandate. The strength of your voice in the IMF for example is still determined by the size of your share contribution. The United States has the greatest influence in this regard at 18%. U.S., Germany, Japan, France and Great Britain together hold about 38% of the vote. Each of these countries appoints their own representative to the executive board, while other groups of countries elect a representative. The U.S. Executive Director is Karin Lissakers, and she works closely with Lawrence Summers and the U.S. Treasury Department to design policy for the IMF. The above-mentioned countries have the highest quota. A country’s quota at the IMF determines its voting power, the amount of financial resources it must provide to the IMF and its access to IMF financing. The larger a country’s quota, the more say that country has in the governance of the international financial institution. These financial muscles give the major global powers, US being the noisiest, the ability to dragoon poor countries into their desired paths with a clear intent to aerate the gains for their MNCs.
The famous British economist, John Maynard Keynes, a founding delegate at the time, made this ironic remark about the attitude of the United States in 1932: “The rest of the world owes them money. They will not take payment in goods; they will not take it in bonds; they have already all the gold there is. The puzzle which they have set to the rest of the world admits logically of only one solution, namely, that some way must be found of doing without their exports”. I am not sure whether he was right, but he wasn’t obviously wrong.
As far as leadership is concerned, the status quo remains effectively in place: The World Bank has always been led by an American and IMF by a European.
The Fallacy of Homogeneity
I must acknowledge that these institutions haven’t always been a curse for the developing countries, despite their draconian tendencies. When lending money to the developing countries, desperate as they are for financial assistance, the institutions must not impose preconditions that ultimately leave the borrowing countries worst off in the longest term. Structural Adjustment Programs (SAPs) for example were a disaster for LDCs.
Unlike the route followed by most industrialized countries, the IMF forces countries from the Global South to prioritize export production over the development of a diversified domestic economy. All policies and preconditions for lending are designed without any serious regard for differences in each country’s socio-politics, culture, history, economic capabilities. This in a word is the fallacy of homogeneity haphazardly pushed by the institutions.
Third World Traveler notes that nearly 80% of all malnourished children in the developing world live in countries where farmers have been forced to shift from food production for local consumption to the production of crops for export to the industrialized countries. The IMF also requires countries to eliminate tariffs and provide incentives for multinational corporations – such as reduced labor and environmental protections. Small businesses and farmers can’t compete with large multinational corporations, resulting in sweatshop conditions where workers are paid starvation wages, live in inhumane conditions, and are unable to provide for their families. The cycle of poverty is perpetuated, not eliminated.
The disproportional amount of power held by wealthy countries translates into decisions that benefit wealthy bankers, investors and corporations from industrialized countries at the expense of sustainable development. It is no surprise that the IMF then uses its leverage over cash-strapped developing countries to force them to open up to powerful transnational corporations.
Basically, these institutions, especially the IMF, are profit making lending institutions just like any private bank. So instead of US or Germany for example lending huge amounts of money to an assistance-seeking country, which will be risky and uncertainty-laden, they do that through IMF. The money is ultimate given back, with billions of dollars’ worth of interest, but the consequences of their initial preconditions last for generations.
In a word, as the nations, developed and developing, long to accumulate more and more wealth to themselves through international trade and financial systems, we must do so in the spirit of fairness and regard for justice. There is a need for policy re-alignment if the Global South is to embrace these institutions in good faith as its very own.
The author is a former Teaching Assistant at the University of Juba, South Sudan. He is currently doing Masters in Developmental Economics Ritsumeikan University, Japan. He can be reached by email: mmadutkon@gmail.com
The opinion expressed here is solely the view of the writer. The veracity of any claim made is the responsibility of the author, not PaanLuel Wël Media (PW) website. If you want to submit an opinion article, commentary or news analysis, please email it to paanluel2011@gmail.com. PaanLuel Wël Media (PW) website do reserve the right to edit or reject material before publication. Please include your full name, a short biography, email address, city and the country you are writing from.
About Post Author
