1. Bretton Woods, New Hampshire United Nations Monetary and Financial Conference 1 - 22 July 1944 World Bank (1945)International Monetary Fund (1946) (IMF) 2. Plan to establish an International Trade Organisation Results: 1. Foundation of + ITO 730 delegates from all 45 Allied nations Origin of the 3 main institutions that govern globalization! Famous participant: Purpose: finance the rebuilding of Europe after the devastation of WWII John Maynard Keynes

2. 3. The Bretton Woods System of fixed exchange rates Par (equal) value system: USA defined the value of the dollar in terms of gold One ounce of gold = $ 35 Guarantee: US government will always exchange gold for dollars at that rate All other members had to define the exchange value of their money in terms of gold or in terms of the U.S. dollar, and they guaranteed the convertibility of their own currencies into dollars at a fixed exchange rate. Changes of the exchange rates (parity) could only be made with the consent of the IMF Fixed exchange rate system (Gold exchange standard with the US dollar as key currency) Member countries had to maintain their parity by buying and selling foreign currency, usually US dollars Great advantage:Currencies were kept stable and predictable Good for international traders and investors Growth of international trade

3. - the International Bank for Reconstruction and Development, established in 1945 - the International Finance Corporation, established in 1956 - the International Development Association, established in 1960 - the International Centre for Settlement of Investment Disputes, estd. in 1966 - the Multilateral Investment Guarantee Agency, established in 1988 Governments can choose which of these agencies they sign up to individually President: Robert B. Zoellick The World Bank (Group) Today: Group of 5 international organizations (agencies): provision of finance and advice to other countries Purpose: - economic development and poverty reduction - encouraging and safeguarding international investment Headquarters: Washington, DC IBRD: 184 members

4. Organisational structure Board of governors (1 governor and 1 alternate governor from each member country, which appoints them) usually the ministers of finance or governors of the central banks Executive Board President + 23 other executive directors by tradition a US national various departments five of them represent individual countries (USA, GB, F, G, Japan), the other 19 represent groups of countries all directors appointed by their respective governments

5. Member governments subscribe to the basic share capital of the World Bank, with votes proportional to shareholding Result: the World Bank is controlled primarily by developed countries, while clients have almost exclusively been developing countries Total votes, as of 1 November, 2004: USA: 16.4% Japan: 7.9% Germany: 4.5% United Kingdom: 4.3% France: 4.3% Major decisions require an 85% majority!

6. Main goals of the World Bank nowadays: - fight poverty and improve the living standards of people in the developing world Measures: Provision of long-term loans, grants and technical assistance Areas: - health and education - environmental projects - improvement of infrastructure (dams, roads etc.) - economic development Focus nowadays on support for small scale local enterprises, Rather than on measures for aggregate economic growth New attitude: Clean water, education, and sustainable development are essential to economic growth Heavy investment in such projects

7. The International Monetary Fund Background: Situation in the 1930s unprecedented rates of unemployment 1/4 of the US workforce was unemployed Great depression Monetary restrictions of international trade, because Many countries didn't have enough foreign currency(e.g. because of trade deficits) Some countries' central banks didn't exchange enough money into foreign currency not enough foreign currency available for growing international trade Some countries hoarded gold and money that could be converted into gold Result: Competitive devaluations Countries made their currencies cheaper in order to export more goods Other countries retaliated Headquarters: Washington, D.C

8. - unrestricted conversion from one currency into another - stabilization of the value for each currency, - elimination of restrictions and practices like competitive devaluations 1. by stimulating demand to ensure economic growth and stability Keynes:"In the long run we're all dead!" - Free markets can't always regulate themselves free markets can lead to massive long-term unemployment unemployment is the result of a lack of sufficient aggregate demand! In this case governments must stimulate demand: - by increasing public expenditures - by cutting taxes and/or 2. by improving restrictive monetary practices (Classical theory: economic disruptions are only temporary!) Role of the IMF:Provision of money/loans for "deficit spending" Belief: Need for collective action at the global level for economic stability! + pressure on member countries to act along these lines Original purpose of the IMF:Prevention of another global depression Objectives:

9. Expansionary economic policy: - increase of public expenditure (state expenditures) - lower taxes - lower interest rates Contractionary economic policy: - less public expenditure (cutting of deficits) - higher taxes - higher interest rates Government: Central Bank: Stimulation of demand Economic growth (expansion) Less demand Less economic growth (contraction) Dangers:- inflation - governments don't repay their debts in better times Keynes: The state should play an active role in the economy Excursus:

10. Organisational structure Board of governors (1 governor and 1 alternate governor from each member country, which appoints them) usually the ministers of finance or governors of the central banks Executive Board Chairperson + 23 other members by tradition a non-US national various departments http://www.imf.org/external/np/sec/memdir/eds.htm Dominique Strauss-Kahn five of them represent individual countries (USA, GB, F, G, Japan), the other 19 represent groups of countries

11. Quotas and voting Members in May 1946: 39 Members today: 184 Each member country contributes a certain sum of money (quota subscription) determined by the IMF itself on the basis of the country's wealth and economic performance (reviewed every five years) Purposes: - pool of money (2001: $269 bn) from which members can borrow when they are in financial difficulties - basis for how much a member country can borrow - determine the voting power of a country USA 17,1% Japan 6,1% Germany 6% France 5% GB 5% Italy 3,3% Canada 3% Russia 2,8% Major decisions require an 85% majority! 80 poorest countries together 10% G8 states

12. The collapse of the Bretton Woods System Growing world tradeGrowing demand for money for transaction purposes not enough gold and dollars available! 1971: USA stopped guarantee to convert dollars into gold 1973: free exchange ratesExchange rates (prices of currencies) are now a result of market forces on capital markets for most countries (floating) IMF lost a great part of its purpose New field of activities, e.g. - The IMF now tries to influence the market forces (economic policies) that determine the exchange rate - evaluate member countries' economic performances

13. Three main functions of the IMF today: 1. Surveillance (supervision): - Examination of all aspects of any member's economy that are relevant for that member's exchange rate - Evaluation of member countries' overall economic performance more influence on members' economic policies periodic consultations in the member country Belief:strong and consistent domestic economic policies will lead to stable exchange rates and a growing and prosperous world economy 2. Financial assistance: - The IMF lends money to member countries with payment problems Potential borrower must present a plan of reforms, which usually includes: - reduction of public expenditure - tight monetary policy - privatization of industries

14. 3. Technical assistance: for members who need expertise in central banking and public finance etc. e.g. developing countries, Russia

15. A critical view on IMF policies: Funds are only provided if countries engage in contractory and neo-liberal policies Neo-liberal policy:- less state intervention: free markets can regulate things better - market liberalization: free trade and free flow of capital Negative results:- Industries in poor countries often can't compete with imported goods, which are sometimes even subsidised. - high interest rates and other contractory measures lead to slow economic growth - free capital markets: local banks go bankrupt, small businesses and farmers can't get any more loans - privatization of nationalized industries - austerity: reduction of debts by reducing public spending local industries go bankrupt, foreign MNCs take over Attraction of foreign investment Advantages:- MNCs bring expertise and access to foreign markets - new employment possibilities - MNCs have better access to sources of finance - not enough money for health, education and a social safety net

16. The IMF's most important macroeconomic goal: low inflation Less important: unemployment, distribution of income and wealth, education, health (due to its focus on monetary problems) More attention on help for the poor, health and education and "good governance" Newest tendency:

17. Suggestions for a better policy: Take it slowly! A functioning market system requires: - clear property rights and the courts to enforce them - competition and information can't be established overnight Development also requires a transformation of society, e.g. - Education: All countries which have invested in universal primary education (including girls) have done better Successful East Asian countries:- dropped protective barriers slowly and carefully - state investments for enterprises - joint-venture companies China has only just started to dismantle trade barriers after 20 successful years - Help for the poor (safety net)important to avoid riots and upheaval - Land reform:In many developing countries a few rich people own most of the land - Fight against corruption

18. World Bank - assists developing countries through long-term financing of development projects and programs - acquires most of its financial resources by borrowing on the international bond market - staff of 7,000 drawn from 184 member countries IMF - oversees the international monetary system - promotes exchange stability and orderly exchange relations among its member countries - assists all members - both industrial and developing countries by providing short- to medium-term credits - draws its financial resources principally from the quota subscriptions of its member countries - staff of 2,300 drawn from 184 member countries - evaluation of member countries' economic performance What the h… is the difference?