Eric Toussaint: Concerning the founding of the Bretton Woods’ Institutions

By Dilip - Saturday, March 30, 2019

Series: 1944-2019, 75 years of interference from the World Bank and the IMF (Part 1)

In 2019, the World Bank (WB) and the IMF will be 75 years old. These two international financial institutions (IFI), founded in 1944, are dominated by the USA and a few allied major powers who work to generalize policies that run counter the interests of the world’s populations.The WB and the IMF have systematically made loans to States as a means of influencing their policies. Foreign indebtedness has been and continues to be used as an instrument for subordinating the borrowers. Since their creation, the IMF and the WB have violated international pacts on human rights and have no qualms about supporting dictatorships.

A new form of decolonization is urgently required to get out of the predicament in which the IFI and their main shareholders have entrapped the world in general. New international institutions must be established. This new series of articles by Éric Toussaint retraces the development of the World Bank and the IMF since they were founded in 1944. The articles are taken from the book The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, Mumbai: Vikas Adhyayan Kendra, 2007, or The World Bank : A critical Primer Pluto, 2007.

In the beginning [1]

It was in 1941, the year the United States entered the Second World War, that discussions were initiated concerning the international institutions to be set up once this major conflict was over.
In May 1942, Harry White, chief international economist at the U.S. Treasury, presented Franklin Roosevelt with a blueprint entitled “Plan for a United and Associated Nations Stabilization Fund and a Bank for Reconstruction and Development of the United Nations”. One of its objectives was to convince the allied nations currently at war with the Axis powers (Germany, Italy, Japan) that once peace was established, certain systems would need to be adopted to prevent the world economy entering a depression similar to that of the 1930’s.

Between 1941 and July 1944, when the Bretton Woods Conference assembled, several of the proposals contained in the initial plan were abandoned. But one of them came to fruition: the creation of the IMF (International Monetary Fund) and the IBRD (International Bank for Reconstruction and Development), better known as the World Bank.

To fully understand the roles attributed to these two institutions, we must go back to the late 1920s and the 1930s. The severe economic depression that gripped the United States during this period had a profound effect on world capitalism in general. One of the consequences was that in 1931 Germany stopped repayment of its war debt to France, Belgium, Italy and Great Britain. In a domino effect, these countries stopped repayment of their external debt to the United States [2]. As for the United States, it drastically reduced capital exports in 1928 and even more so in 1931 [3]. At the same time, it cut down on imports. The result was that the flow of dollars from the United States to the rest of the world dried up, and countries with debts to the world’s leading power did not have the dollars to pay it back. Nor did they have the dollars they needed to buy North American products. The machinery of world capitalism was grinding to a halt. Competitive devaluations ensued as each country attempted to win market share at the expense of the others. The developed capitalist world was caught in a downward spiral.

In 1932 John Maynard Keynes made this ironic remark about the attitude of the United States: “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” [4].

One of the conclusions drawn by the United States government under Franklin Roosevelt (U.S. President from 1933 to 1945), was that a great creditor nation must make currency available to debtor countries to be used for repayment of their debt. Another, bolder conclusion was that in certain cases, it is preferable to offer donations instead of loans if a State wants its exporting industries to gain maximum and lasting profit. This question will be dealt with in a following article devoted to the Marshall Plan for the reconstruction of Europe (1948-1951).

Let us take a closer look at the Thirties before going on to the creation of the Bretton Woods institutions during the Second World War... read more:

http://www.cadtm.org/Concerning-the-founding-of-the-Bretton-Woods-Institutions

Part 2 The WB assists those in power in a witch-hunting context