As World War II raged across Europe and Asia, the leaders of England and the United States realized that, in order to ensure a capitalist world economy after the war, they would need multilateral institutions that could enforce rules favoring the free movement of capital internationally. In July 1944 the two governments convened a conference at Bretton Woods, New Hampshire. There they developed the plans for two institutions that would shape the world economy for the next 50 years.
The International Monetary Fund (IMF) was established to smooth world commerce by reducing foreign exchange restrictions. It also created a reserve of funds to be tapped by countries experiencing temporary balance of payments problems so they could continue trading without interruption. This pump-priming of the world market would benefit all trading countries, especially the biggest traders, the United States and Britain.
Also founded at Bretton Woods was the International Bank for Reconstruction and Development (World Bank). The World Bank was given the task of making post-war development loans for infrastructure projects (roads, utilities), which, because they were unprofitable, were not likely to be initiated by private capital. The Bank was also mandated to promote private foreign investment by means of guarantees or participation in loans and other investments made by private investors.
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The founders of these institutions hoped that by establishing ground rules before the end of the war, they could gird themselves against the twin threats of state-managed economies under a socialist model and international anarchy brought on by cutthroat varieties of nationalistic capitalism. They saw that if the major powers did not ensure some access to big capital for the elites of less prosperous countries, those elites could adopt policies with the potential for unraveling the world capitalist economy.
The unwritten goal of the World Bank and the IMF – one that has been enforced with a vengeance – has been to integrate countries into the capitalist world economy. Despite all the rhetoric about development and the alleviation of poverty, the central function of these multilateral lending institutions has been to draw the rulers and governments of weaker states more tightly into a world economy dominated by large, transnational corporations.
Over the past five decades, the World Bank and IMF have steadily gained power and influence becoming the key arbiters determining which countries will receive international loans. This status gives the Bretton Woods institutions the power to enforce economic policies written in Washington, where both the Bank and the Fund are based. For many in the Third World, this harkens back to colonial times.
The policies imposed by the World Bank and the IMF are designed to facilitate the repayment of debt: that is, the steady transfer of wealth out of Third World countries to the bankers of the industrial countries. This transfer of wealth has had devastating consequences for the poor majority. Money that could have been invested in health, education and housing has instead been transferred to wealthy bankers. Accordingly, Third World countries under IMF/World Bank tutelage have seen infant mortality rates increase, schools and housing deteriorate, unemployment skyrocket and the general health of the people decline.
This is a kind of “financial low-intensity conflict” – a war being waged between rich and poor. It is not simply a war between “North and South,” as it is so often portrayed in the mainstream press and academic literature. Rather, it is a collaborative effort between southern elites and their northern counterparts. The Third World rulers get new infusions of cash and remain unaffected by the austerity policies imposed by the technocrats from the IMF and the World Bank. Northern elites get loan payments and can sleep well at night knowing that their allies in the South will keep a tight grip on the workers and keep the money flowing.
Notice that, despite all their pressure to cut back the size of Third World governments, the IMF and World Bank do not pressure Third World leaders to reduce military spending. Without a strong repressive apparatus, it would be impossible to enforce the harsh policies dictated from Washington.
From the book Fifty Years is Enough: The Case Against the World Bank and the International Monetary Fund by Kevin Danaher.