Since its creation many things changed concerning the role of the IMF. For example in the 1950’s the environment in which the IMF operated changed since international trade and investment flows expanded and most industrial countries moved back to currency convertibility. In 1960 the Executive board of the IMF decided that examinations of members should include consideration of general fiscal, monetary and trade policies that had a direct or indirect impact on payment balances.
In the late 1960’s and the early 1970’s severe monetary instability lead to the collapse of the Bretton-Woods monetary system and brought about serious doubt to the effectiveness of the IMF. The result was the thorough revision of the IMF’s Articles of Agreement, resulting in the significant expansion of its formal scope. The end result was the acceptance by member states of a renewed obligation to avoid currency manipulation and submit themselves more fully to the scrutiny of the IMF. “…. a Bretton-Woods system of relatively clear international rules and a degree of tolerance for politically necessary derogations at the national level was replaced by a system with softer rules and more room for national discretion. The Fund’s formal mandate for overseeing the process of international economic adjustment was now to cover a broader macroeconomic terrain.” (Pauly 1994).
As well as the conception and birth of the IMF in 1944 came the creation of the International Bank of Reconstruction and Development (IBRD), more commonly known as the World Bank, which was created to aid recovery and facilitate reconstruction in post World War II Europe by promoting long term economic development through the financing of infrastructure projects such as road building and improving the water supply. The World Bank generates capital funds from borrowing from international financial markets. Like all banks its purpose is to loan these funds with interest to states for their economic development projects. Overtime the World Bank has changed it’s orientation from an emphasis on major infrastructure projects in the 1950’s and 60’s to basic human needs and poverty in the 1970’s and finally sustainable development (where economic development is to be coupled with a concern for renewable sources and the environment) in the 1990’s.
When the IMF and the World Bank were created an organisation to promote trade liberalisation was also contemplated in the form of the ITO that would seek to lower restrictions on trade and set rules of commerce. However, the creation of such an organisation failed since its proposed trading scheme, the Havana Charter failed to win the approval of the US Congress, “Protectionists opposed the arrangement for being too liberal and liberals were against it for being too protectionist (..). Without U.S. support the ITO was dead.” (Isaak 1995). Without the ITO the U.S. needed to find another institutional base from which to create and enhanced liberalised trade regime. It therefore turned to the General Agreement on Trade and Tariffs (GATT) that after its birth in the late 1940’s became the principal international organisation designed to promote and protect free trade in post war countries of the Liberal International Economic Order (LIEO) i.e. the main capitalist allied powers after the war. However the GATT was never intended to be a formal institution with enforcement powers, which is where its main problem lay. Trade disputes were common and in order to facilitate the reaching of a settlement, premiums were placed on negotiations. As trade disputes increased, the GATT under pressure from the U.S. became more and more involved in dispute settlement which in themselves were getting continually entangled with legal procedures.
In 1995 talks that began in 1986 culminated with the creation of the World Trade Organisation (WTO). The institution that was created to replaced GATT differed from its parent three ways. It extended the GATT’s coverage to products, sectors and conditions of trade previously not covered adequately, “The Final Act signed in Marrakech, Morocco, on 15th April 1994, weighed 385 pounds and included over 22000 pages.” (Jackson 1994). The WTO also has enhanced powers of dispute settlement. Findings of its arbitration panels are binding on domestic laws of the member countries. The WTO also has certain legislative powers that removed the need for long negotiations that resulted in large packages embracing multiple concessions. The WTO is what was once envisioned for the failed ITO.
Before moving on to the impact on these institutions there is one more common political role that all the above institutions play. The industrial member states that provide these institutions with the bulk of their resources are able to use the IMF, the World Bank and the WTO as agents to express their political interests. “….Those interests may be expressed in normative terms, since they reflect both perceptions of the way in which the international economic system should develop and a minimal set of standards for judging appropriate behaviour among the states participating in that system.” (Pauly 1994).
In order to discuss their impact on globalisation it would be ideal to first outline briefly what the principle aspects of globalisation are. Many see it as a primarily economic phenomenon, involving the increasing interaction and integration of national economic systems through the growth of international trade, investments and capital flows. Also, a rapid increase in cross-border social, cultural and technological exchange is part of the phenomenon of globalisation.
All of the afore mentioned institutions are absolutely fundamental and could even be labelled as prerequisites for the interaction and integration of national economic systems. The WTO aids those states that already have the ability to function in a highly competitive economic system. The World Bank and the IMF can be described as machines which serve as tools used to model states which have lost their way in attaining the goals which were set by the principal countries associated with creation and sustenance of those institutions.
The lowering of trade barriers, which is primarily promoted by the Bretton-Woods institutions to enhance liberalised trade has a secondary consequence of causing the gradual weakening of national borders, which in turn facilitates cross-border social, cultural and technological exchange.
Another aspect of globalisation which is not mentioned in the above description is the fact that it is coupled with the effect of weakening states’ authority and control over their respective populations. Indeed, the Bretton-Woods institutions do require a fair amount of cooperation from member states in return for the prospect of a better economic situation.
Since globalisation is primarily an economic phenomenon it would be reasonable to suggest that the Bretton-Woods institutions are perhaps the cause of economic globalisation and that the social and cultural aspects of globalisation are merely a side effect of the economic aspect. Keeping in mind we are looking to asses their impact on globalisation, one would have to point out that they are one of the main causes of globalisation and that they are having a constant impact on globalisation as more and more countries become members and look to shape themselves in an appropriate way for the economic system that the Bretton-Woods institutions are trying to promote.
Sources
Louis W.Pauly, Promoting a Global Economy: The Normative Role of the International Monetary Fund, in Stubbs and Underhill (eds.), Political Economy and the Changing global Order, (Oxford: OUP, 1994)
Charles W. Kegley Jr, Trade and Monetary Issues in Globalized Political Economy, in Kegley Jr and Wittkopf, World Politics: Trend and Transformation (Bedford St. Martin’s 2000)
Richard Langhorne, The Coming of Globalization: It’s Evolution and Contemporary Consequences, (London: Palgrave, 2001), chapter 4: conclusion.
