Bretton Woods on fire: Hard times ahead for World Bank and IMF

As the California forest fires raged over many days in October 2007, it dominated the US and some sections of the global media. Focus was on how the fires started and what factors contributed to their rapid spread.

Below the media’s radar, another kind of ‘fire’ has been building up over the past few months on the US East Coast. According to one leading intellectual-activist that I heard this week, this is a development whose reverberations will be felt right around the world, and for years to come.

The Bretton Woods are on fire. Actually, it’s the Bretton Woods institutions, namely the World Bank and International Monetary Fund (IMF).

Speaking at the Greenaccord Media Forum in Rome on 10 November 2007, Walden Bello, Filipino academic and executive director of the Focus on Global South, suggested that the World Bank and IMF are headed for turbulent times as countries in the global South (majority world) assert themselves economically.

Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during July 1944. That marked the birth of the World Bank and IMF.

The World Bank and IMF are essentially lenders of money to governments for development purposes. If these lending institutions run short of borrowers, they will be out of business.

That hasn’t happened yet, but Bello (photo, below) identified several trends that must make the Bretton Woods duo worry about losing control.

According to Bello, the resistance is led by countries of Latin America, a region where the twin lenders have long been controversial. In May 2007, Venezuela under President Hugo Chavez announced it would be leaving both the World Bank and IMF.

Venezuela has repaid its remaining debts to the World Bank five years ahead of schedule and paid off its debts to the IMF shortly after Mr Chavez first took office in 1999. Bello says the oil-rich country has sought to provide alternative forms of credit and financial support for countries in the region. One such project is the “Bank of the South”, which aims to financially help Latin American countries to pay off their IMF loans ahead of schedule.

In October 2007, Nobel prize-winning economist Joseph Stiglitz endorsed the Chávez plan to create a pan-regional bank for Latin America. Professor Stiglitz, a Washington insider and former World Bank chief economist, said the Bank of the South would benefit the region and give a welcome shakeup to western lending institutions.

Read March 2006 commentary by Mark Engler in Common Dreams: Latin America Unchained: Will the U.S. Lose its Influence Over Countries That Have Paid Off Their IMF Loans?

These trends, coupled with the rise of a new set of Southern countries willing and able to provide loans or grant aid to fellow countries of the South, are slowly but steadily eroding the domination and power the Bretton Woods twins have exercised for over half a century, Bello said.

Some of these alternative lenders are giving money with fewer conditions and restrictions. These include China, Saudi Arabia and Venezuela. This is what the editor of the influential US journal Foreign Policy called ‘rogue aid’ in an article he wrote in the journal’s March/April 2007 issue.

As the global South asserts itself and begins to exercise the power of their recent economic growth – which, ironically, is partly thanks to past borrowing from the Bretton Woods twins, the coming years will be crucial for the future World Bank and IMF.

The fire in the Bretton Woods is only just smouldering. But watch that smoke…

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Walden Bello won the Right Livelihood Award (the Alternative Nobel) in 2003, for his decades of advocacy, activism and research. As the award foundation noted: “Walden Bello is one of the leading critics of the current model of economic globalisation, combining the roles of intellectual and activist. As a human rights and peace campaigner, academic, environmentalist and journalist, and through a combination of courage as a dissident, with an extraordinary breadth of published output and personal charisma, he has made a major contribution to the international case against corporate-driven globalisation.”

While campaigning on human rights he saw how the World Bank and IMF loans and grants were supporting the Marcos regime in power. To expose their role, he took the risk of breaking into the World Bank headquarters in Washington, and brought out 3,000 pages of confidential documents. These provided the material for his book Development Debacle (1982), which became an underground bestseller in the Philippines and contributed to expanding the citizen’s movement that eventually deposed Marcos in 1986.

Read full profile on Walden Bello on Right Livelihood Award website

Meeting photos courtesy Adrian Gilardoni’s Flickr account