Keynes at Bretton woods (3)

The way in which the three institutions were set up increased even further the American grip, or perhaps more importantly the potential American grip, over the world economy.  The value of the dollar was set at 1/35th of an ounce of gold.  The rates of exchange at which other currencies were set were agreed, in the aftermath of Bretton Woods, in accordance with each country’s relation to the dollar as it then stood.   Once agreed upon, these rates of exchange could only  be permanently altered with the IMF’s permission.  Short term fluctuations in exchange, assumed to arise usually from  balance of payments problems, would be corrected by loans from the IMF, which would set conditions, or “conditionalities” as they were called,  designed to cure the defects in economic performance which had caused the imbalance.  During the first twenty five years of its existence the IMF hardly ever exercised this discipline, as the western industrialized countries,  which were then the objects of most of its lending, usually took the  necessary steps in any case.  During the second twenty five years of the IMF’s history conditionalities became immensely important.  Another feature of the IMF’s constitution which was to have later but as yet unforeseen fatal  consequences for the third world, was the way its voting structure was set up.[i]  The IMF  was given its own medium of exchange called, not bancors, but special drawing rights.  Each country was given a basic voting power of 250 votes.  But these only represented 12.5% of total voting power.  The rest of the votes were distributed in accordance with the number of SDRs each country  held, and these were alloted in accordance with each country’s financial contribution to the  fund.  This gave the richer countries, especially the United States, control over the IMF.  The result has been that in 1990 the 135 developing countries, which constituted a huge majority of the 175 countries which belonged to the IMF, only had a voting share of 34%.  The rich countries have used their control of the fund to make this imbalance even greater.  In 1992  the proportion of basic voting rights  to quota voting rights was reduced from 12.5% of the overall total to 3%.  This, despite the increase in IMF membership from 44 countries in 1947 to 175 in 1993.  Furthermore, total quotas contributed to the fund  increased from $7.5 billion in 1945 to $201 bn in 1992, equivalent, if the originally agreed ratio of dollars to SDRs is adopted,  to 145 bn SDR’s.  If the original proportion between basic voting rights and overall available funds had been preserved, the basic votes each member has would now stand not at 250 but 5000.  The weight of basic, as opposed to quota based, voting power would rise from 3 to 37%.  The number of developing countries now in the IMF  indicates that, given this share of  the basic vote, their share of the overall vote  would rise from 2.3 to 28%.  If the quota based rights of the developing countries, calculated on the amount each country contributes to the fund,  were also added to the basic voting rights, which  contributions  amounted to 21% of total funds in 1993,  this would give the countries of the south a 49% say in the policies of the IMF.

The  World Bank and GATT were also  structured in ways that   favoured the rich countries.  The main branch of the World Bank is the International Bank for Reconstruction and Development, the IBRD.  Just like any other bank the World Bank needs to pay interest to its depositors, so the IBRD lends at commercial rates..  In 1960 another branch, the International Development Association, the IDA, was set up, to make loans on easy terms to poor countries.  In practice the two are hardly distinguishable, sharing the same offices, board of directors, sources of finance and, perhaps most importantly, general philosophy.  As the IDA makes soft loans at low rates of interest, but is using the same source of deposited funds as the IBRD, it is perhaps not surprising that the IDA, in spite of its declared mandate to focus its lending on poverty reduction, has tended to compensate its depositors for the lower rates of interest, which is all it can offer as a return on their money, by making loans which to the critical eye   often seem to have been  of more commercial advantage to the depositor than to the recipient.  Thus instead of helping poor peasants dig local wells the IDA has funded such projects as the notorious Sardar Sarover dam in western India, which must have rewarded the industrial contractors who built it extremely well but displaced 100,000 poor people without compensation or adequate re-settlement. In fact, a large proportion of the IDA’s money returns immediately to the west in procurement contracts, most of it to companies in the world’s ten richest countries.  In the fiscal year 1992-3 the IDA lent $4,471 bn and of this sum $2,347 bn was paid out again in procurement contracts  in  the rich countries on IDA credits.  In that year the IDA disbursed more money back to Britain ($285 mn) than it gave to Bangladesh ($253 mn) and more to Switzerland ($73 mn) than it gave either to Senegal ($64.4 mn) or Guinea ($7.3 mn) or Sierra Leone ($64.4 mn).[ii]

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