Current Affairs – 7
World Bank, IMF, and ITO (present day WTO) when, how and why they came into being?
Circumstances leading to their formation
Towards the fag end of World War 2, the economies of the western warring nations such as France, Germany, Italy, Great Britain etc. were in pitiable shape. Japanese and Russian economies had also taken very bad hits. Only the U.S. had emerged unscathed and strangely much stronger because of the following reasons.
1. It did not suffer aggression on its soil due to geographical reasons and
2. It became the supplier of arms and ammunition to the allied side, thanks to its highly developed industrial base. Such war related supplies brought the U.S. export opportunities, and huge profits. In rest of the war-ravaged countries unemployment was at its highest, inflation had soared, and there was shortage of every type of goods. The economies were clearly hurtling in a downward spiral. Life of the common people had become insufferably hard. The governments in Europe and elsewhere clearly understood something urgent had to be done urgently to reverse this trend and put the economies back in the process of reconstruction path.
With this looming crisis in the background, representatives of nearly 44 nations led by Britain, France, Japan etc. met at the Washington Hotel in Bretton Woods in New Hampshire in the United States. Since this conference (popularly known as the Bretton Woods Conference) was held under the aegis of the United Nations, it is also known as the United Nations Monetary and Financial Conference.
What happened in the conference?
A sense of doom and despair had gripped the delegates who had assembled in the Washington Hotel. Economies in their countries were in a shambles. They had become too anemic to stand on their feet again on their own. Blood had to be transfused to the World Economic Order which had hemorrhaged so severely due to the War. How could it be done?
1. Factories, infrastructure, housing and farms destroyed in the war had to be rebuilt. For this, long term loan with concessional rate of interest had to be given to the governments and private corporate bodies.
2. In trying to provide resources for the war front, many nations had stretched themselves beyond their capacities. Their financial systems had fallen into total disarray. Neither austerity measures, nor any fresh fiscal measure could resurrect them. These nations desperately needed huge injection of cash to bring about a semblance of orderliness, so that normal economic activities could resume.
3. The international trading system was reeling under high protectionist import duties. Each and every country wanted to limit its imports, and increase its exports, so that foreign exchange reserves could go up.
What resulted from this competitive selfishness in import-export policy created barriers and bottlenecks for international trade. With reduced global trade, production activities in most countries began to plummet.
Therefore, something had to be done quickly enough to pull down these self-defeating, protectionist policy measures with regard to import and export. Boosting global trade was the key for revival of production and trade activities. This panacea was relevant for both small and big countries affected by the War.
To address the first problem of extending long term loans to rebuild factories, roads, ports etc., it was decided to float a new institution called the International Bank for Reconstruction and Development (IBRD). This organization was later renamed World Bank.
To provide emergency cash assistance to distressed nations for reviving their factories, banks, farms etc., so that they could regain their vitality, the International Monetary Fund (IMF) was formed.
To address the issue of removal of impediments to global trade, the International Trade Organization was mooted. However, it was born later as a still-born baby, thanks to the policy clash between member nations.
Its intended role was played later by the General Agreement on Trade and Tariff (GATT). (GATT is not a UN body.) The present day World Trade Organization (WTO) is the latest avatar of GATT.
Thus, the United Nations-sponsored effort to reinvigorate the war-stricken world economy had three planks to stand on
- the World Bank
- the IMF and
- the ITO
By 1945 the two organizations, the World Bank and the IMF came into existence.