Bretton Woods: Emergence of a Global Economic Regime

While the world was still engaged in the Second World War, forty-four nations, led by the USA and the UK, met at Bretton Woods, New Hampshire, on !"" #uly $%%, to discuss economic plans for the post-war peace& 'o(erning the international economy was an idea made possible by the anarchy of the interwar period& )n reaction, go(ernments sought to secure world peace and prosperity through international economic cooperation& Such cooperation would be based on a world mar*et, in which capital and goods might mo(e freely, regulated by global institutions operating in the general interests of greater stability and predictability& +hree regulatory institutions were en(isaged, the )-., the )nternational Ban* for /econstruction and 0e(elopment 1)B/0, later *nown as the World Ban*2, and an )nternational +rade 3rgani4ation 1)+32, which came into being only as the 'eneral Agreement on +ariffs and +rade 1'A++2, but much later became the W+3& +he )-. and )B/0 were formali4ed as organi4ations during the Bretton Woods conference, while the proposal for an )+3 was part of a separate Ha(ana 5harter of $%6&

Factors Contributing to Establish Bretton Woods Institutions

+he conference held at Bretton Woods was made possible by three important conditions& First, power was concentrated, with a small number of states, in North America and western 7urope, ma*ing decisions for an entire world system& +he communist eastern 7urope states, with their centrally planned economies, maintained deliberate policies of isolation from the world economy, and e(entually had their own 8international9 regime& +he dominant 7uro-American states were also not challenged by countries in what came to be called the +hird World, a great number of which were still emerging as independent states& )nstead these countries were fully integrated into a world economy they neither managed nor controlled& 5oncentration and e:clusion facilitated the management of the system by confining the number of actors& Hence, the success of Bretton Woods in creating the )-. and the )B/0 was due to the fact that countries other than the USA and Britain did not ha(e a chance to include their 8different points of (iew9 about the set-up of the resulting institutions& +he second condition ma*ing Bretton Woods possible resided in the common interests shared by the powerful states, mainly their beliefs in capitalism and, specifically, by the end of the Second World War, classical liberalism tempered by Keynesianism& States differed in their degree of preference for state inter(ention, with .rance ad(ocating more go(ernmental planning, and the USA preferring limited planning, once the war was o(er& Ne(ertheless, the economies of all states relied fundamentally on mar*et mechanisms, with pri(ate ownership and minimal barriers to the flow of pri(ate capital& +hey all agreed on a conception of the 8common good9, the bringing of international peace through ma:imi4ation of economic welfare, with political and military security being of primary importance& +he third condition was the new willingness, and ability, of the USA to assume leadership& After the Second World War, the American economy en;oyed a huge, growing mar*et, particularly in consumer goods, great producti(e capabilities,

and a strong currency& 5ombined with American military might, especially atomic weapons, this pro(ided the ad(anced capitalist economies, and the world system they were planning, with a leading power& American hegemony and internationalist 1capitalist2 ideals became, for the USA, inseparable& According to 7ric Hobsbawm, a well-*nown historian, the institutions emerging from Bretton Woods were de facto subordinated to American foreign policy&

The Conference
+he United Nations -onetary and .inancial 5onference hosted by the US +reasury 0epartment at Bretton Woods in $%% brought together delegates from forty-four allied and associated nations and a neutral country, Argentina& Some of the delegates were well ac<uainted with the comple: documents to be discussed& -ost learned of them only during the conference& Keynes described the conference in the following terms, 8twenty-one countries ha(e been in(ited =to Bretton Woods> which clearly ha(e nothing to contribute and will merely encumber the ground ? +he most monstrous mon*ey-house assembled for years9& +he Bretton Woods 5onference merely formali4ed pre(ious agreements between the British and the Americans& As pointed out by many, the USA and the UK wor*ed together toward forming a world with e:panding trade and easily con(ertible currencies9, a world that matched their own economic interests as industrially dominant powers& +he Bretton Woods conference was conducted through the means of three commissions, 5ommission ) 1)nternational -onetary .und2, of which US +reasury 0epartment 3fficial White was chairman@ 5ommission )) 1Ban* for /econstruction and 0e(elopment2, chaired by Keynes, who is leading the British delegation@ and 5ommission ))) 13ther -eans of )nternational .inancial 5ooperation2, chaired by 7duardo Suare4 of -e:ico& As it was an ad(anced technical conference, power resided in the hands of e:perts ! economic and technical specialists and lawyers& +he United State9s representati(e White neutrali4ed Keynes, the only person seriously able to upset his plans, by appointing him chairman of the 5ommission on the )B/0& +hat *ept the British so busy that they were unable to interfere with committee meetings regarding the )-.&

The Bretton Woods model

+he Bretton Woods institutions were supposed to go(ern agreed-upon principles for the conduct of economic affairs decided at the conference ! as stated in Article ) of the Agreement, the )-.9s purpose was 8to facilitate the e:pansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high le(els of employment and real income and to the de(elopment of the producti(e resources of all members as primary ob;ecti(es of economic policy9& +hese principles were as follows, & +he e:perience of the competiti(e depreciation of currencies during the $ABs led to the principle of international control o(er e:change rates between national currencies& As the long-raging contro(ersy between free and fi:ed e:change rates could not be resol(ed, a compromise was reached that can be termed 8managed fle:ibility&9 Under this, the par (alues 1see pp& C , 6C2 of member-country currencies were defined in gold terms, but allowed to (ary around these standards, with par (alues changed by more than this only under drastic conditions and by permission of the )-.& "

"& A pool of gold and currencies to be drawn on in case of balance of payments difficulties was subscribed by member countries to the )-. according to a <uota system ad;usted e(ery fi(e years& +he <uota determined the country9s drawing rights and also its (ote in the institution& 5ountries could e:change specified amounts of their currencies for those of other counties under conditions super(ised by the )-.& A& +o enable multilateral trade, after a fi(e-year transition period, all member countries were to eliminate controls ma*ing currencies con(ertible into one another at the official rates without restrictions or discrimination unless appro(ed by the )-.& %& +he Bretton Woods Agreement established a permanent institution to promote international monetary cooperation and pro(ide the machinery through which countries could consult and collaborate& +he institution, called the )-. was part of an en(isaged system that also included a ban* dealing with long-term in(estments 1)B/02, a trade organi4ation 1)+32& +he )-. would ha(e a board of go(ernors, representing all member countries, which met annually, an e:ecuti(e board, of which fi(e members would be from countries with the largest <uotas, meeting continuously, and a managing director, who was not a board member& Doting on both boards was to be according to <uotas& Under the original <uota system, the USA had "6&$ percent of the (ote and the UK A&A percent& )n #anuary $%C the USA in(ited the thirty-four nations that had, by then, ratified the agreement to attend the inaugural meeting of the board of go(ernors of the )-. and the )B/0 in Sa(annah, 'eorgia& )n Sa(annah it was decided that the offices of the )-. and )B/0 were to be located in Washington, 05, because it would be easier to get economic information from the countries through their embassies&

Formalizing dominance
-any scholars critici4e that Bretton Woods was an occasion for the formali4ation of US and UK dominance into an international monetary agreement, complete with enforcing institutions& +he )-. was not formed as a democratic institution in anything li*e the sense of inter-country e<uality& )t was primarily an American in(ention, with British collaboration, consciously designed to foster one particular perspecti(e on the de(elopment of global economic relations& )t was located in Washington to place it within a policy-ma*ing system dominated by the US +reasury& +he (oting system was deliberately designed to enable the US will to pre(ail, and to pre(ent policies not in the US national interest from being adopted, or perhaps e(en discussed& .rom the beginning an e:pert-led discourse pre(ailed which ensured the domination of the Western economic intellect, to the point that many 8member countries9 had little idea what they were accepting when they ratified the Bretton Woods Articles of Agreement& Although Bretton Woods resulted from American and British planning and cooperation, the USA dominated the conference and directed it according to its national interests& +he USA emerged from Bretton Woods as an unchallenged hegemonic world power& A world economy centered on the USA came to dominate the <uarter century that followed& +he Bretton Woods regime became synonymous with a hegemonic monetary order centered on the dollar& Eet rather than being re(ealed for what it was, US domination could be clothed in the raiment of 8international consultation and collaboration9 because of the apparently international nature of the conference& +hus the considerable abilities of the Bretton Woods institutions A

to direct and control the global economy that de(eloped o(er the ne:t halfcentury were, to a great degree, e:tensions of American political-economic power&

The International Monetary Fund

As originally concei(ed at Bretton Woods, the )-. was to be a supranational body essentially doing two things, it would regulate the rates at which currencies were e:changed among member countries@ and it would help ensure international stability by ma*ing loans at times of crisis in member countries9 balances of payments& While its mission statement remains essentially the same, the )-. has subse<uently undergone ma;or changes, including se(eral apparent re(ersals of fortune, that ne(ertheless resulted in an o(erall accumulation of power and influence ! although recently that accumulati(e trend seems finally to ha(e re(ersed& +oday )-. policies directly affect the economies of FG countries and influence, sometimes drastically and often disastrously, the li(es of the (ast ma;ority of the world9s people& Until recently the )-. was probably the single most powerful non-state 1go(ernance2 institution in the world& Hublicly, go(ernments had to praise the )-., while complaining pri(ately about the policies imposed on them&

tructure of the IMF

7stablished in $%G, when "$ go(ernments signed articles of agreement resulting from the $%% Bretton Woods conference, the )-. actually began operations in $%6& +he )-. was supposed to be the primary supranational institution that regulated the financial conditions deemed appropriate for the successful functioning of the world economy ! especially, in its early days, conditions relating to currencies and e:change rates& +hese financial conditions were understood within a classically liberal capitalist (iew of how economies should function& Necessarily, Keynesian notions were added to this classical and neoclassical base ! that some mar*ets needed regulating by <uasi-state institutions to ensure proper and fair functioning ! 8necessarily9 because the )-. itself is such a regulatory institution& As stated in Article ) of the Agreement, the ob;ecti(es of the )-. were, & +o promote international monetary cooperation through a permanent institution which pro(ides the machinery for consultation and collaboration on international monetary problems& "& +o facilitate the e:pansion and balanced growth of international trade, and to contribute thereby to high le(els of employment and real income and to the de(elopment of the producti(e resources of all members as primary ob;ecti(es of economic policy& A& +o promote e:change stability, to maintain orderly e:change arrangements among members, and to a(oid competiti(e e:change depreciation&

%& +o assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign e:change restrictions which hamper the growth of world trade& G& +o gi(e confidence to member go(ernments by ma*ing the general resources of the .und temporarily a(ailable to them under ade<uate safeguards, thus pro(iding them with opportunity to correct malad;ustment in their balance of payments without resorting to measures destructi(e of national or international prosperity& G

C& )n accordance with the abo(e, to shorten the duration and lessen the degree of dise<uilibrium in the international balances of payments of members& +heoretically the )-. is situated within the United Nations system& )t is the central institution of the international monetary system, the system of international payments and e:change rates among national currencies, which pre(ents crises in the payments system& )t does so by monitoring the economic policies of member countries and acting as a reser(e fund that can be used by members needing temporary financing to address balance of payments problems& +he )-. focuses mainly on the macroeconomic policies of go(ernments, including, policies relating to the state budget, the management of money and credit, and the e:change rate@ and the financial policies of go(ernments, including the regulation and super(ision of ban*s and other financial institutions& )n addition, the )-. loo*s at the structural policies that affect macroeconomic performance& +he Board of 'o(ernors, with representati(es appointed by all member countries 1usually a country9s minister of finance or the go(ernor of its central ban*2, is the highest authority go(erning the )-.& +he Board of 'o(ernors meets twice a year at the ;oint annual meetings of the )-. and the World Ban* to ma*e decisions on ma;or policy issues& +he Board delegates immediate, day-to-day decision-ma*ing to an 7:ecuti(e Board of twenty-four e:ecuti(e directors, with a managing director as chairman& +he )-. staff and management are accountable to the )-.9s managing director, who is appointed by and accountable to the 7:ecuti(e Board& By 8gentleman9s agreement,9 the managing director is chosen by the )-.9s 7uropean member go(ernments, while the first deputy managing director is chosen by the US go(ernment& +he 7:ecuti(e Board selects the managing director, who, besides ser(ing as chairman of the Board, is chief of the )-. staff, and conducts the business of the )-. under the direction of the 7:ecuti(e Board& Appointed for a renewable fi(e-year term, the managing director is assisted by a first deputy managing director and two other deputy managing directors& +he 7:ecuti(e Board usually meets three times a wee* at the )-. head<uarters in Washington, 05& +he )-.9s fi(e ma;or shareholders ! the USA, #apan, 'ermany, .rance and the UK ! along with 5hina, /ussia and Saudi Arabia, ha(e their own seats on the Board& +he other si:teen e:ecuti(e directors are elected for twoyear terms by groups of countries called constituencies& -ember (otes and representation are s*ewed in fa(or of creditor nations& A new formula for calculating (oting weights can be considered only during periodic re(iews of the 8<uotas9 assigned to each country& +en of the a(ailable twenty four Board seats are currently occupied by de(eloping countries, collecti(ely holding "C percent of the (oting share& .or de(eloping countries to carry a decision in their fa(or they must build alliances with creditor members& +here are currently forty-fi(e subSaharan African member countries in the )-., which hold a combined (oting share of %&% percent& +he )-.9s financial resources come mainly from the capital subscriptions that countries pay when they ;oin the organi4ation or, following periodic re(iews, when <uotas are increased& 5ountries pay "G percent of their <uotas in 8hard9 or readily con(ertible currencies, such as US dollars or #apanese yen 1originally these payments were in gold2, and the rest in their national currencies& Iuotas determine a country9s subscriptions, its (oting power, and the amount of financing it can recei(e from the .und& Iuotas reflect the si4e of a country9s economy and its (olume of trade& +he USA contributes most to the )-. and has C

6 percent of the total (otes@ #apan and 'ermany both ha(e about C percent of the (otes@ .rance and the United Kingdom each ha(e G percent@ Saudi Arabia, 5hina and /ussia ha(e appro:imately A percent each& +he )-. also borrows from international mar*et and (arious donor countries under specific arrangements& 5ountries usually approach the )-. for financing when they are e:periencing balance of payments problems ! that is, not ta*ing in enough foreign e:change 1especially hard currency2 from e:ports, or foreign in(estments, to pay for imports& +his emergency situation, important because some imports are (ital for economies or social ser(ices to function, is usually accompanied by other signs of economic crisis, as when the national currency is under attac* in foreign e:change mar*ets, the country9s reser(es of gold or hard currencies are hea(ily depleted, or the economy is suddenly depressed& -ember countries can immediately and unconditionally draw on the "G percent of their <uota 1called a 8tranche9 or portion2 originally deposited in hard currency or gold& Should this be insufficient, they can then draw up to three times their original <uotas 1in hard currencies2 as 8upper tranche9 loans under conditions specified by the 7:ecuti(e Board of the )-. or, more e:actly, by the )-. staff, as reported to the 7:ecuti(e Board& +hese conditions consist of policies that a go(ernment has to put into effect to con(ince the )-. that it will be able to repay the loan within a time span of one to fi(e years& +here has been a significant increase in the number of conditionalities set for low-income countries eligible for its Ho(erty /eduction 'rowth .acility 1H/'.2 program& +his increase in prescriptions has greatly e:panded the )-.9s remit to include public sector employment, pri(ati4ation, public enterprise reforms, trade policy, pricing, social security systems and 8systemic9 reforms, among others& +he )-. currently pro(ides loans under a (ariety of 8arrangements9 and 8facilities9, Stand-by Arrangements assure member countries that they can draw up to a specified amount, usually o(er twel(e to eighteen months, to deal with short-term balance of payments problems& The Extended Fund Facility pro(ides assurance that member countries can draw up to a specified amount, usually o(er three to four years, to ma*e structural economic changes that the )-. thin*s will impro(e balance of payments& The Poverty Reduction and Growth Facility 1replacing the 7nhanced Structural Ad;ustment .acility in $$$2 pro(ides low-interest loans to the lowest-income member countries facing protracted balance of payments problems, with the cost to borrowers subsidi4ed by funds raised through past sales of )-.-owned gold, together with loans and grants from richer member countries& The Supplemental Reserve Facility pro(ides additional short-term loans at higher interest rates to member countries e:periencing e:ceptional balance of payments difficulties because of sudden loss of mar*et confidence reflected in capital outflows& ontingent redit !ines pro(ide precautionary )-. financing on a shortterm basis when countries are faced by a sudden loss of mar*et confidence because of contagion from difficulties in other countries&

Emergency Assistance helps countries coping with balance of payments problems arising from sudden and unforeseeable natural disasters or, since $$G, emergency conditions stemming from military conflicts&

At present, all )-. borrowers are de(eloping countries or 8emerging mar*et9 1middle-income2 countries reco(ering from financial crises ! although the middleincome countries ha(e recently become reluctant to borrow from the .und& Since the late $6Bs, all the de(eloped-country members ha(e used pri(ate or other capital mar*ets for loans, but in the first two decades of the )-.9s e:istence o(er half the financing went to these countries& +he )-. does not consider itself to be an aid agency or a de(elopment ban*& )t deals only with go(ernments ! the foreign e:change loaned by the )-. is deposited with the country9s central ban* to supplement its international reser(es& And the )-. e:pects borrowers to gi(e priority to repaying its loans on schedule& +he )-. e:amines the economic policies of member countries through a process *nown as sur(eillance& 3nce a year, the )-. appraises members9 e:change rate policies within the o(erall framewor* of their economic policies& Sur(eillance is based on the )-.9s con(iction that certain appro(ed domestic economic policies will lead to stable e:change rates and a growing and prosperous world economy&

IMF !olicy: "#$%&'"

+he )-. was formed mainly to address the economic needs of the 7uropean and North American nation-states in the immediate post-war period& +hese problems were thought to centre on e:change rates and balances of payments& By ;oining the )-. in the postwar years indi(idual countries surrendered some of their so(ereign economic rights, especially o(er how they set their e:change rates, in return for collecti(e conditions of 8e:change stability, orderly e:change arrangements, the a(oidance of competiti(e e:change depreciation, and a liberal regime of international payments9& 7ssentially the original conception behind the )-., resulting from the e:perience of the 0epression of the $ABs, was that member countries would adhere to certain standards of beha(ior spelled out in a code that was administered by an international institution& +hrough the )-., member countries originally agreed to fi: their e:change rates in a system of 8par (alues&9 7ach member country determined a (alue for its currency, measured in relation to gold, a commodity used to represent (alue in general, which was permanently (alued at JAG an ounce& At the same time the )-. tried to get member countries to remo(e restrictions on the con(ertibility of their currencies into other currencies as a way of smoothing out the financial conditions for international trade and in(estment& By the early $CBs fully con(ertible currency regimes e:isted in many 7uropean members of the )-.& +he other main function of the )-. was to act as a re(ol(ing fund, initially of J$ billion, whereby a country facing balance of payments problems could purchase foreign currency with its own, to correct temporary deficits in its balance of payments ! the amount e:changed had to be repaid in gold or a currency acceptable to the )-., usually within a year&

Crisis and Transition: "#'"&'#

+he )-. traditionally used gold with a (alue pegged to the US dollar as the basis for international transactions& )n the late $CBs, a ma;or de(aluation of British sterling caused fears of subse<uent de(aluations of the US dollar& Speculation F

dro(e the price of gold to unprecedented le(els& 3fficial transactions in gold came to a standstill& )n $6 the USA suspended con(ertibility of the dollars held by other go(ernments into gold& +his forced, )-. to agree for a floating or fluctuating currencies& .irst the British pound, along with currencies tied to sterling, was 8floated9 ! that is, allowed to fluctuate according to demand and supply& Se(eral other ma;or currencies followed& +he US dollar meanwhile was de(alued twice within fourteen months& .inally, the countries were allowed to determine their own e:change rate system& 7(entually three *inds of e:change rate system emerged, 8free floats,9 purely determined by currency mar*ets@ 8managed9 or 8dirty floats,9 in(ol(ing central ban* inter(ention to maintain minimum e:change rates@ and currencies pegged to the dollar, or other ma;or currencies such as sterling, and fluctuating with these& With two of its main bases undercut 1the gold e:change standard and the par (alue system2, the Bretton Woods system, as originally concei(ed, came to an end& )t appeared that the ability of the )-. to regulate world financial conditions was at least greatly diminished, and perhaps finished +he $6Bs, howe(er, saw the )-. re-emerge as an international lending organi4ation on a different, and e(entually more powerful, basis& +he significant change in the )-.9s position occurred as a result of the oil crisis of the early to mid- $6Bs& )n $6A, the 3rgani4ation of Hetroleum 7:porting 5ountries 13H752 raised the price of oil from JA&B to JG& " a barrel& +wo months later it increased the price again, to four times the original& +hese conditions produced a massi(e shift in the geography of international payments& 3il-producing states accumulated huge surpluses in their balances of payments, while most non-oilproducing countries, especially in the +hird World, went into serious deficits& +ime, it seemed, for the )-. to ride to the rescue& +he )-. <uic*ly decided that it should play a leading role in managing the financial predicaments resulting from the oil crisis& )n early $6% the )-. set up a special temporary oil facility, financed by borrowing from member countries, mainly for +hird World countries to draw from to pay the higher oil prices& Also in $6% the )-. introduced an e:tended fund facility to gi(e medium-term assistance to +hird World countries& +he funds controlled by the )-. were greatly increased by increasing the <uotas paid by national go(ernments and establishing a supplementary financing facility based on additional borrowing from member countries& )n $6"!6F the )-. appro(ed more than a hundred stand-by arrangements, often for huge amounts, and for longer repayment times& 7ssentially the )-. sur(i(ed and prospered by lending the funds for o(ercoming the world oil crisis and the multiple debt problems associated with it& Eet the )-. did not pro(ide credit simply and unconditionally to countries in need& )nstead the degree of conditionality increased mar*edly as the .und9s geographic emphasis shifted from .irst World to +hird World loans, and as it introduced an 7:tended .unds .acility to 8gi(e medium-term assistance to members with balance of payment problems resulting from structural economic changes9 1)-. $$Fa2& +his latter phrase meant that states could ta*e longer to pay bac* loans if they promised to implement the (ery significant structural and economic changes that the )-. thought would ensure their capacity to repay& +o summari4e, in the late $6Bs the )-. assumed greater powers of control o(er longer-term economic policies 1structural ad;ustment rather than short-term stabili4ation2 while still supposedly paying 8due regard for the priorities, and circumstances of members&9

The debt crisis of the "#()s

After rising at a rate of " percent per year in the $6Bs, commodity prices dropped sharply in the early $FBs, creating catastrophic circumstances for countries dependent on e:porting raw materials& 5ountries partly compensated for the declining terms of trade with increased foreign borrowing& By $F" the aggregate debt of non-oil producing +hird World countries had risen to JCBB billion& 0ebt crisis was triggered in August $F" when -e:ico announced that it could no longer ma*e loan payments on time& +he )-. then appro(ed a loan to -e:ico conditional upon the acceptance of a structural ad;ustment program& +he program included a reduction in public sector spending and state deficits that reduced go(ernment subsidies on basic consumer goods ;ust as real wages fell precipitously& Bra4il was the other large country in(ol(ed in the debt crisis& +he )-. imposed a policy regime similar to that re<uired of -e:ico& By the mid- $FBs three-<uarters of Katin American countries and two-thirds of African countries were under some *ind of )-.!World Ban* super(ision& +he main players in the debt business were, the )-., the Western commercial ban*s, and the .irst World go(ernments on one corner of a triangular system@ the go(ernments of impo(erished, oil-importing countries on another@ and the people of the affected countries on the third& 5oncerned mainly with ensuring that loans were repaid, the )-. and the commercial ban*s de(eloped an uneasy relationship of mutual support& +he commercial ban*s needed the )-. to ensure loan repayment, and the )-. could do this with stabili4ation and structural ad;ustment measures imposed as conditions for loans ensured by the state& )n return for playing this essential role, denied to pri(ate ban*ing institutions, the )-. demanded that the commercial ban*s contribute e(en more money for international lending& +his made the )-. a more powerful institution again, while increasing the profits of the commercial ban*s 1JGBB million profit in -e:ico, J billion in Bra4il2, but left +hird World countries e(en more hea(ily indebted& )n the end, howe(er, the people of the debtor countries paid the price in terms of unemployment, cuts in ser(ices and higher prices for basic necessities& +he liberali4ation ad(ocated by )-. also brought se(ere recession and economic crisis in Southeast Asian countries, especially )ndonesia, Korea and +hailand& While lending to these countries, the )-. subse<uently forced 8comprehensi(e reforms9 that included increased foreign participation in domestic financial systems, increasing the power of free mar*ets and brea*ing traditionally close lin*s between business and go(ernments& +he policies pursued by the )-. ha(e led to se(ere economic crisis in most of the Katin American countries& )n reality, the growth rate of their economies were drastically fallen following free mar*et policies compare with the growth they ha(e achie(ed in the $6Bs and $FBs when go(ernments followed more inter(entionist and protectionist policies& )n the late $$Bs, and continuing in the early "BBBs, many Katin American countries, following )-.-appro(ed stabili4ation and restructuring programs, became economically depressed&

!rotesting the Fund

)-. policies ha(e long drawn massi(e and (iolent protest from the millions of people ad(ersely affected& Why do large numbers of people protest the granting of )-. loans intended to stabili4e economies in times of troubleL +he )-. gi(es short-term loans to member countries e:periencing balance of payments crises, essentially from pre(iously deposited funds, but with the essential difference B

that the loans are made in 8harder9 1more internationally acceptable2 currencies than the deposits& 3riginally, under the Bretton Woods agreement, the conditions for )-. loans to member countries re<uired simply 8an effecti(e program for establishing or *eeping the stability of the currency of the member country at a realistic e:change rate9& 3(er fifty years this limited 8conditionality9 has grown into something far more& Koan conditionality, imposed on what are usually desperate go(ernments, has become a way for the )-. to regulate the entire gamut of a country9s economic policies& So it is not the actual deli(erance of the loan but its conditionality which is contested& 'o(ernments are re<uired to adopt a set of economic policies and prescribed financial measures based on what the )-. thin*s will promote economic stability, increasing the go(ernment9s capacity to ser(ice loans ! that is, ma*e interest and loan repayments& +he policies suggested by the )-. almost always re<uire reducing tariff barriers on imports, and this eliminates ;obs& +hey increase interest rates to cool the economy and reduce inflation, and this too reduces employment& At the same time, they impose austerity programs that cut bac* go(ernment ser(ices and remo(e state subsidies that ha(e *ept food prices low& So, critics argue, )-. policies create unemployment and po(erty while reducing the national state9s power to remedy the resulting social problems& )mmediately, people who can least afford it are made to pay for loans to go(ernments whose pre(ious policies are deemed mista*en by )-. economists& -ore than this, the )-. imposes its own economic beliefs on countries that might wish to de(elop differently& )-. loans then become a point of tension at which social struggles within a society articulate with tensions between the society and the global system, with two main institutions ! the national state and the )-. ! at the center of the contro(ersy& -ost basically, then, the )-. e:tracts conditions that fa(or repayment at the e:pense of poor and wor*ing people& Hopular discontent <uic*ly escalated in countries which are pursuing austerity measure under the guidance of the )-.& Hrotest often began as 8food riots9 ! people opposing sudden increases in the price of food ! within o(erall 8austerity protests9 !people ob;ecting to broader aspects of a deteriorating situation, such as wage cuts and the elimination of go(ernment subsidies ! all these being conditions imposed on national go(ernments by the )-. in return for the granting of desperately needed loans& .or e:ample, on F -arch $6C, wor*ers in 5ordoba went on stri*e to protest about the Argentine go(ernment9s free4ing of wages for FB days& )n #anuary $66, riots bro*e out in 7gypt after the go(ernment decided to lift subsidies on staple foods& 3n #uly $F , a general stri*e was called by the 0emocratic Wor*ers9 5onfederation in 5asablanca to protest against the -oroccan go(ernment9s decision to lift subsidies on staple foods at the )-.9s insistence& Nigerian protests began in April $FF as a reaction to the lifting of subsidies on petroleum products, and continued o(er two decades& )n Dene4uela, pre(iously a bedroc* of stability and democracy, protests were seen as direct responses to the destabili4ing effects of structural ad;ustment programs& )n spring $$F massi(e unrest and (iolent riots in )ndonesia directly resulted from )-.-mandated reductions in go(ernment subsidies& Since the late $FBs, the mainly national demonstrations against )-. austerity programs ha(e become international protests& +he $FF annual meetings of the )-. and the World Ban*, the largest since Bretton Woods, held in West Berlin during the last wee* of September, and bringing together A,BBB ban*ers and financial officials, were met for the first time by massi(e protest, organi4ed by .irst World Western opposition groups, and attended by tens of thousands of non-+hird World citi4ens& +he +hird World 5ongress, made up of representati(es

from impo(erished +hird World countries, issued a call for debt cancellation, while a broad range of people e:pressed concern about world hunger and po(erty& As a result of mounting criticism, the )-. engaged in a series of internal e(aluations of its operations and policies, and in "BB set up a permanent )ndependent 7(aluation 3ffice 1)732 with the purpose of8impro(ing the )-.9s effecti(eness by enhancing the learning culture of the )-. and enabling it to better absorb lessons for impro(ements in its future wor*&9 7(en more remar*ably, e:ternal e(aluations of )-. procedures and policies were announced following an 7:ecuti(e Board meeting in $$C& Based on the reports submitted by e:perts engaged in 7:ternal 7(aluations, in $$$ the )-. issued a statement saying that member countries had endorsed 8a clear mandate for the .und to integrate the ob;ecti(es of po(erty reduction and growth more fully into its operations&9 +he )-. changed the name of the 7nhanced Structural Ad;ustment .acility 17SA.2 to the Ho(erty /eduction and 'rowth .acility 1H/'.2& +he change of name was intended to signal that )-. lending for poor countries would now be embedded in a broader de(elopment agenda, Ho(erty /eduction Strategies& +his facility, a(ailable to eighty lowincome countries, pro(ides ten-year loans at an annual interest rate of B&G percent& +he )-. says that the new (ersion essentially does two things, it immerses po(erty reduction into structural ad;ustment@ and it aims at broader participation and greater country ownership of the economic programs that accompany loans&

E*aluating the IMF

+he power of the )-. comes from the direct and indirect control it maintains o(er the granting of loans to go(ernments e:periencing crises in balances of payments and ha(ing difficulty ma*ing interest and principal payments on foreign debts& Hower is e:ercised through the conditions specified in stabili4ation and ad;ustment programs that are imposed on the granting of desperately needed loans& At least since the mid- $6Bs, conditionality has been based on an understanding of economies based on a (ersion of neoclassical economics that we refer to as neoliberal ! that is, a re(i(al of nineteenth-century liberalism that counters Keynesian inter(entionism by stressing pri(ati4ation, deregulation and other anti-state policy areas& A ma;or study by the United Nations 5onference on +rade and 0e(elopment 1UN5+A02 of forty-eight least de(eloped countries 1K05s2 found that the )-.9s Structural Ad;ustment .acility, begun in $FC, and e:tended in $F6 into the 7SA., has become the main new determinant of national economic policy in poor countries& As a result, the )-. has been sub;ected to high and increasing le(els of wellfounded criticism& +hird World countries ha(e long said that they resent being told what to do with their economies by the )-.& After their e:perience with the .und in $$6M$F, most of the middle-income countries began accumulating huge international foreign e:change reser(es, in part so they would not ha(e to rely on the )-. again& +he )-. is still influential in poorer regions 1for e:ample, subSaharan Africa2 where countries see* debt relief, and help in paying higher food and fuel prices with the global inflation of "BB6 onward& But its influence in middle-income countries has plummeted&

"

IBR+ , The World BanAt Bretton Woods, discussion of the formation of international organi4ations dwelt almost e:clusi(ely on the )-.& +he )B/0 was a mere afterthought& What little e:change there was concerning the )B/0 centered on its possible role in the post-war reconstruction of 7urope& 3n the few occasions that poor countries were ! briefly ! mentioned, issues such as po(erty ne(er came up& )ndeed, such were the preoccupations of the 7uropeans and Americans at the time that labels such as 8poor countries,9 or the more critical term 8underde(eloped counties,9 did not e:ist as functional geographical categories ! countries outside 7urope and North America were referred to as 8the colonies&9 Now, howe(er, the World Ban* operates as a de(elopment agency with a mission statement that says 8our dream is a world without po(erty&9 .or this the World Ban* group, as the conglomerate calls itself, lends USJ 6 billion a year to client countries& What is more, it sets the conditions under which further billions, in loans and grants, flow to +hird World and post-communist countries& +a*en together, these two inter(entions ! direct loans and the setting of policy conditions ! ma*e the World Ban* the most important de(elopment institution in the world& 8+he World Ban*,9 as one commentator wittily puts it, 8is to economic de(elopment theology what the papacy is to 5atholicism, complete with yearly encyclicals9& Between afterthought and dream lies a long and contorted history that saw the Ban* grow from (ery little to a mighty institution&

tructure and !ur.ose

+he World Ban* group actually consists of fi(e speciali4ed institutions, & +he )nternational Ban* for /econstruction and 0e(elopment 1)B/02 ma*es de(elopment loans, guarantees loans and offers analytical and ad(isory ser(ices& +he )B/0 borrows at low interest rates by selling bonds in pri(ate capital mar*ets in .irst World countries and ma*es near-mar*et interest loans to 8creditworthy countries9 in the +hird World and elsewhere& )t has made about JACB billion in loans o(er its lifetime and currently lends J B&G billion a year for some ninety new operations in thirty-si: countries& "& +he )nternational 0e(elopment Association 1)0A2 gi(es loans to countries that are 8usually not creditworthy9 in international financial mar*ets& )0A loans carry no interest, but a B&6G percent administrati(e charge is made annually& +he )0A, a(eraging JC billion a year in lending to the poorest countries, is funded from member go(ernments9 national budgets& A& +he )nternational .inance 5orporation 1).52 is the largest multilateral source of loan and e<uity financing for pri(ate sector pro;ects in the de(eloping world& %& +he -ultilateral )n(estment in(estment insurance& 'uarantee Agency 1-)'A2 pro(ides

G& +he )nternational 5enter for Settlement of )n(estment 0isputes 1)5S)02 facilitates the settlement of in(estment disputes between go(ernments and foreign in(estors& Howe(er, the terms 8World Ban*9 and 8the Ban*9 refer properly only to the )B/0 and the )0A& )ts head<uarters is in Washington, 05, and it has the same A

membership as the )-. ! FG countries& )ts staff numbers F,BBB employees in Washington and ",BBB in the field& +he World Ban* is owned by its member countries represented by a Board of 'o(ernors, which meets once a year, and a Washington-based Board of 0irectors, which conducts day-to-day business& +he purposes of the World Ban*, as stated in Article Woods2 Articles of Agreement, are, & of the original 1Breton

+o assist in the reconstruction and de(elopment of territories of members by facilitating the in(estment of capital for producti(e purposes, including the restoration of economies destroyed or disrupted by war, the recon(ersion of producti(e facilities to peacetime needs and the encouragement of the de(elopment of producti(e facilities and resources in less de(eloped countries&

"& +o promote pri(ate foreign in(estment by means of guarantees or participations in loans and other in(estments made by pri(ate in(estors@ and when pri(ate capital is not a(ailable on reasonable terms, to supplement pri(ate in(estment by pro(iding, on suitable conditions, finance for producti(e purposes out of its own capital, funds raised by it and its other resources& A& +o promote the long-range balanced growth of international trade and the maintenance of e<uilibrium in balances of payments by encouraging international in(estment for the de(elopment of the producti(e resources of members, thereby assisting in raising producti(ity, the standard of li(ing and conditions of labor in their territories& %& +o arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent pro;ects, large and small ali*e, will be dealt with first& G& +o conduct its operations with due regard to the effect of international in(estment on business conditions in the territories of members and, in the immediate postwar years, to assist in bringing about a smooth transition from a wartime to a peacetime economy& +he World Ban* has a capital stoc* subscribed by its member countries and di(ided into shares&

Early years
+he World Ban* was (ery much a US creation& Americans made up much of its early leadership and staff and pro(ided most of its capital& +he result was 8a strong and enduring American imprint on all aspects of the Ban*, including its structure, general policy direction, and forms of lending9& +he World Ban*, in its early form of the )B/0, was largely dependent on selling bonds to raise the bul* of its loan capital& +he rest of the a(ailable funds came from the subscriptions of member countries ! the original capital subscription was J$& billion, of which JA&" billion or A%&$ percent was from the USA& .or the first ten years the US part of this subscription, around one-third of the total, pro(ided the only fully usable component, because the deposit was in dollars, the main currency used in postwar international transactions& Additionally FG percent of the Ban*9s bonds were denominated in US dollars and sold on Wall Street Ban*s and insurance companies, the main mar*et for bonds in the post-war period& So, in its early years, as a supplier of loans to western 7uropean go(ernments for reconstruction in the late $%Bs, and later as attention shifted toward the richer +hird World %

countries in the $GBs, the World Ban*9s main mission was to gain the confidence of pri(ate in(estors, especially those on Wall Street& +he first president of the Ban* 1for a mere si: months2, 7ugene -eyer, had been a Wall Street in(estment ban*er and go(ernment official& And 7ugene Blac*, president between $%$ and $C", had been at 5hase Ban* and was (ery much Wall Street9s man& )ndeed, all presidents of the Ban*, e:cept two, ha(e been commercial ban*ers, in(estment ban*ers, or lawyers with e:tensi(e New Eor* ban*ing connections& +he Ban* garnered Wall Street9s confidence by insisting on 8fiscal and monetary discipline9 on the part of borrowing countries, and by engaging in 8sound ban*ing practices,9 such as confining its acti(ity to pro;ect lending for the construction of easily defined, public utilities 1electric power, transportation and other economic infrastructure2, with strict end-use super(ision, including close control o(er disbursements from loans& +he 7isenhower administration, howe(er, mo(ed in the direction of increasing aid to +hird World countries in the late $GBs, arguing that such aid was 8an in(estment for peace&9 Hence, the late $GBs saw a number of changes& Within the Ban*, lending was directed toward the poorer countries, rather than 7urope, or the richer non-7uropean countries, while 8de(elopment9 was coming to mean po(erty alle(iation, rather than transportation and electrical power pro;ects& US policy toward the Ban* in the late $GBs and early $CBs seems to ha(e been moti(ated by three concerns, building a strong organi4ation to promote a 8free and open world economy9@ le(eraging funds from the pri(ate mar*et and other countries to ease the burden on the USA@ and supporting countries deemed important to US interests& All this led to a second wa(e of institution formation in the period $GF!C", including the formation of the )nternational 0e(elopment Association 1)0A2 within the World Ban*& +he idea of adding an )0A to the Ban*9s lending structure had first been mentioned in $G in response to some important de(elopments during that time& A year earlier a Special United Nations .und for 7conomic 0e(elopment had been formed& +he USA wanted to pre-empt that organi4ation and *eep de(elopment funding within the Ban*& +he )0A would offer 8soft loans9 18soft9 meaning o(er long periods of time and at (ery low rates of interest2 from re(enues deri(ed from donor counties& +he USA pro(ided %" percent of the initial contribution and mobili4ed support from other de(eloped countries& 3riginally the )0A funded pro;ects in much the same manner as the )B/0, and indeed wor*ed closely with it, but the concept of 8pro;ect9 was widened in the )0A to include 8social9 pro;ects dealing with health and education, while eligibility for )0A loans was restricted to poor countries& )n the end the )0A opened the Ban* to a broader perspecti(e on de(elopment lending that made possible its emphasis on po(erty and basic needs in the $CBs and $6Bs&

World Ban- /.erations

+he main problem was defining a po(erty alle(iation policy that would suit the Ban*9s e:isting lending practices based in pro;ect lending, which would appeal to its principal shareholders and could be sold to borrowing countries& +he period $CF!6A saw a number of temporary enthusiasms ! population control, (arious employment policies, nutrition, health, water supply ! all culminating in the later G

$6Bs with a 8basic needs a..roach9 to lending ! that is, gi(ing greater attention to need rather than output in the allocation of resources& )n $6A -cNamara, the then World Ban* Hresident, came up with a theme for the rest of the decade, the Ban* would carry out large rural de(elopment schemes focused on small farmers as its main (ehicle for direct po(erty alle(iation& 7(en so, this pro(ed difficult to translate into 8ban*able pro;ects&9 7(entually the final form was called 8integrated rural de(elopment pro;ects&9 Ban* loans and technical assistance were gi(en for *ey agricultural inputs 1fertili4er, seeds2 and infrastructure 1water, electricity, roads2 aimed at small farmers in a specific geographical area 1hence a 8pro;ect92 which would increase producti(ity, pro(iding surpluses that could be sold in mar*ets, which in turn would raise 1money2 incomes& Such pro;ects, howe(er, pro(ed to be easier to outline on paper in Washington than to carry out in the field, it turned out that little was *nown about rain-fed tropical agriculture in Africa, the prime regional target of Ban* lending, and that attitudes and institutions were more difficult to change than technology& 7(en more, ma;or land tenure reforms were a prere<uisite of any agricultural de(elopment aimed at the poor& 3therwise loans went mainly to middle-income and richer farmers, increasing income ine<ualities& As a result of all this, e(en the World Ban*9s own 3perations 7(aluation 0epartment called most such pro;ects 8failures9& Since then, the lending of the World Ban* on po(erty alle(iation pro;ects was restricted only to one-third of the total lending, with the rest going to the traditional areas of infrastructure in(estment& 0ebt and balance of payments in +hird World countries became leading issues, with 8structural ad;ustment9 as the solution& tructural 0d1ustment 0issatisfied with ad hoc pro;ect lending, and with countries needing foreign e:change to pay for oil imports and meet interest payments, -cNamara said in $6$ that the Ban* should use program loans to induce 8reforms9 in recipient, mainly middle-income, countries& By this time, within an o(erall policy regime shift from Keynesianism to neoliberalism, the meaning of the term 8reform9 was being changed to mean structural ad;ustment lending to promote e:port orientation and trade liberali4ation& +he World Ban* would follow the lead of its more senior partner, the )-., under a di(ision of labor that allocated 8stabili4ation programs9 1short-term ad;ustment lending2 to the .und and longerterm 8structural ad;ustment lending9 1SAK2, aimed at correcting deeper 8structural9 problems, to the Ban*& )n $FB the Ban* laid out the general conditions under which structural ad;ustment loans 1SAKs2 would be made a(ailable& +he argument was that the new conditions faced by +hird World countries ! deteriorating terms of trade and growing current account deficits ! forced them to reconsider how they might 8ad;ust9 their de(elopment patterns and economic structures& +he Ban*9s new lending program would pro(ide loans that were policy-based 1rather than pro;ect-based2, e:tending o(er se(eral years, and would pro(ide direct support for specific policy reforms decided upon during 8dialog9 with the borrowing country& +he rise of neoliberal go(ernments across US and 7urope 1/onald /egan in US, -argaret +hatcher in UK, Helmut Kohl in West 'ermany2 substantially influenced the Ban*9s funding policies& +hus the /eagan administration came into power in $F with antagonistic (iews of the World Ban* and other multilateral institutions and fa(oring reduced US support for them& Against ob;ections from C

the State 0epartment, the +reasury 0epartment, with support from Hresident /eagan, cut the US contribution to replenishing the )0A by "G percent, with the clear implication that future participation was conditional on a drastic change in Ban* policy away from any notion of state-directed de(elopment& Structural ad;ustment became the main means of carrying these political beliefs into economic practice& At first, these reforms were directly connected with a country9s balance of payments, under a 8strict constructionist (iew9 of the Ban*9s arena of inter(ention& But e(entually this limitation was discarded, and the entirety of a country9s macroeconomic structure became sub;ect to change& )n the World 0e(elopment /eport for $F6 the Ban* laid out its role in structural ad;ustment lending& +he Ban* said that it had increasingly been recogni4ed that it 2as *irtually im.ossible to ha*e an in*estment .ro1ect that .roduced a high rate of return in a bad .olicy en*ironment & Therefore the Banhad introduced ne2 instruments in su..ort of de*elo.ing countries3 .rograms and .olicies of structural reform: structural ad1ustment loans focused on macroeconomic .olicies and institutional change at the country le*el4 and sector ad1ustment loans .romoting sectoral .olicies5 These 2ere medium6term lending .rograms 7o*er se*eral years8 that facilitated the reforms through 2hich countries ad1usted their .olicy frame2or-s so that they could 9achie*e sustainable gro2th3 and obtain 9e:ternal financing53 The Ban- e:.lained that structural ad1ustment re;uired firm commitments on the .art of go*ernments to sustain reform o*er time5 +he same report also discussed the *inds of policy needed for achie(ing faster growth in de(eloping countries& .irst, trade policies to increase international competiti(eness, maintaining realistic e:change rates and replacing <uantitati(e restrictions with tariffs reduced countries9 8bias against e:ports9 and mo(ed them toward an outward-oriented trade strategy that impro(ed trade performance and helped them achie(e higher rates of growth& Second, policies aimed at macroeconomic stability, lower fiscal deficits through reducing public e:penditures were essential for increasing sa(ings and impro(ing resource allocation& +hird, complementary policies impro(ed resource allocation, as in fewer price controls, in(estment regulations and labor mar*et regulations 1such as high minimum wages2& Spea*ing of the highly indebted countries, the report urged that the momentum of reform must not be allowed to slac*en, e(en in the face of political difficulties, if the orderly ser(icing of debt were to be maintained& )nterruptions in debt ser(icing could damage the financial system and ma*e the resumption of normal le(els of borrowing from the pri(ate capital mar*et difficult& With these new policy framewor*, by the end of the $FBs a set of structural ad;ustment policies based in a rightist interpretation of neoclassicism was firmly in place&

+ebt Relief
While the /eagan administration9s ideological predilection may ha(e been for a reduced US commitment to the Ban*, the realities of the debt crisis of the $FBs soon o(erwhelmed political preference& At first, as we saw in 5hapter A, an assumed short-term li<uidity crisis in middle-income +hird World countries was addressed by )-. stabili4ation programs& But by the mid- $FBs, it had become clear that many countries could not ser(ice e(en their 8rescheduled9 debts& +he USA, along with other donor countries, was forced to reconsider the role of the multilateral ban*s, including the pre(iously suspect World Ban*, in far more 6

drastic solutions& +he /eagan administration was con(inced that the Ban* had changed in response to US pressure, and that the new *ind of structural ad;ustment lending could respond to the debt crisis by ad(ancing mar*et liberali4ation& +hus, the USA supported increased funding for the )0A in $F6 and a doubling of Ban* capital in $FF, with the stipulation that US (etoing power would be maintained e(en though its proportion of subscriptions fell to "B percent& With its new emphasis on structural ad;ustment, the World Ban* caught up in the $FBs with the criti<ue of state inter(entionism& +his meant microeconomic policies aimed at increasing the efficiency of the supply side of an economy, as in pri(ati4ation, increasing ta: incenti(es to producers, changing trade policy, and so on& So in general the structural part of ad;ustment entailed two broad mo(ements, changing the structure of incenti(es toward profit orientation, increasing the role of mar*ets as compared with states and augmenting pri(ate property rights@ and restructuring the sectoral composition of an economy toward tradable 1and especially e:portable2 goods& Koans were mostly gi(en to the countries in Africa and Katin America& -any conditions were imposed on borrowing countries by the Ban*& +he Ban* began to stress issues of 8good go(ernance9 understood as efficient, orderly and accountable public administration& +his new attitude on the part of the Ban* responded to an en(ironment of increasing criticism, including substantial amounts from within the institution& +he Wapenhans /eport, named after a Ban* (ice-president and entitled 87ffecti(e implementation, *ey to de(elopment impact,9 found that 8at least twenty percent of the FBB-odd pro;ects in A countries contained in the Ban*9s J %B billion loan portfolio presented ma;or problems& +he Ban*9s 3perations 7(aluation 0epartment published a report, entitled World Bank Structural and Sectoral Adjustment Operations, in #une $$", which critically re(iewed Ban*9s programs, 8)n the F Sub-Saharan African countries re(iewed, no less than % had e:perienced a fall in in(estment rates during ad;ustment&9 Kess than "B percent of ad;ustment-related technical assistance loans were substantially effecti(e, and G percent had only negligible impact& +he report said that decreased social e:penditures as part of structural ad;ustment lending had led to 8unsatisfactory results9 in terms of po(erty@ income ine<uality had increased in some countries and landless farm wor*ers had borne the greatest burden of higher food prices&

Re*isions
So it is that some commentators find that the World Ban* shifted at the end of the $FBs and in the early $$Bs to a re(ised neoliberal model stressing 8mar*etfriendly9 state inter(ention and good go(ernance 1political pluralism, accountability and the rule of law2 with a renewed emphasis on social issues such as po(erty and education and a dedication to debt reduction& +hus, in the $$Bs, the (arious World Ban* 0e(elopment /eports outlined a new 8holistic approach9 to de(elopment in(ol(ing social safety nets, po(erty, health, education, en(ironment, rural areas and gender considerations, in concert with con(entionally neoliberal areas, such as increased property rights, trade liberali4ation and pri(ati4ation& )n $$6 #ames 0& Wolfensohn, who became president of the Ban* in $$G, called for closer relations with other institutions and ci(il society actors to increase the effecti(eness of the de(elopmental effort& )n $$F the Ban* carried out a series of consultations with go(ernment F

representati(es, bilateral donor agencies, multilateral financial institutions, academics, N'3s and other ci(il society organi4ations, together with the pri(ate sector& Also in $$F Wolfensohn suggested an integrated approach to de(elopment based on a framewor* articulated and 8owned9 by the country itself, aimed at po(erty reduction and sustainable de(elopment, *nown as the 8Com.rehensi*e +e*elo.ment Frame2or-3 150.2& )n many respects, this is the Ban*9s policy answer to criticisms that structural ad;ustment does little to alle(iate po(erty& As the president of the Ban* said, the 50. was necessary 8since too many in the de(eloping world were not being helped sufficiently by the de(elopment process, and =the World Ban* was> in danger of losing the war against po(erty9& +he 50. attempts to balance the institution9s concern for macroeconomic policies stressing economic growth with the social and human aspects of de(elopment, and especially po(erty alle(iation& +he 50. is based on four principles designed to guide implementation of future de(elopment strategies in specific countries& .irst, the framewor* emphasi4es the need for a long-term, holistic (ision of de(elopment that considers structural and social issues simultaneously, as well as ac*nowledging the interlin*ages between all economic sectors& Second, the country recei(ing assistance or loans needs to be in control, ta*ing ownership of the process& +his entails the respecti(e go(ernments building consensus domestically and consulting with as many different ci(il society and pri(ate sector actors as possible& +he necessary prere<uisite to country ownership is an emphasis on partnership between the 8sta*eholders9 in the de(elopment process, again incorporating go(ernment, ci(il society and the pri(ate sector of the country concerned, and the main e:ternal actors, such as the World Ban*, donor countries and bilateral aid organi4ations& .inally, the 50. calls for regular assessments of actual de(elopment outcomes to ensure accountability toward meeting the goals set out in each country9s long-term (ision& +he 50. was part of a larger effort by the Ban* to produce what it termed a new consensus in the international de(elopment community, comprised of (arious donor organi4ations and bilateral and multilateral agencies such as the UN and the 3750, on the ingredients for successful de(elopment policies& Se(eral UN conferences ha(e also led to the production of a document entitled 83n common ground, which retains central elements of the 50. proposal& 3b(iously, the Ban* is trying to reposition itself within a much larger group of international organi4ations that emphasi4e a dedication to alle(iating po(erty and pro(iding de(elopment assistance& 7mphasi4ing agreement on the fundamentals of de(elopment policies with other institutions of the UN, which historically ha(e been much better recei(ed by the +hird World and N'3s, the World Ban* is signaling a shift in approach to its many critics& +he "BBB World 0e(elopment /eport, Attac*ing Ho(erty also indicates a shift in World Ban* thin*ing toward situating the social and cultural dimensions of po(erty alle(iation at least on a par with structural ad;ustment& +he report is subse<uently organi4ed around three central themes of opportunity, empowerment and security& +he theme of material opportunities for po(erty reduction still refers to the necessity for economic growth, but also includes the <uality and pattern of growth and the importance of the e<uality of distribution, themes that are no(el to Ban* thin*ing&

Criticizing the BanWhy this new face on an old institutionL .rom $FC onward, the Ban* came under increasing criticism from N'3s representing social and en(ironmental mo(ements, from people concerned about po(erty, from gender-oriented groups, and from many other concerns that mobili4ed people and ideas and moti(ated liberal political constituencies in donor countries& As criticism of the World Ban* mounted, the institution began to respond, certainly by ad;usting its image, and arguably by modifying its substanti(e policies& )ncreasingly, the Ban* has ac*nowledged the necessity of pursuing more 8comprehensi(e strategies9 that emphasi4e 8democratic, e<uitable, and sustainable de(elopment9& Some commentators see this as a genuine attempt by the Ban* to rein(ent itself@ others detect creati(e window-dressing as part of a process some describe as the art of 8paradigm maintenance&9 +he 5ritics pointed out that the World Ban* has played a critical role in legitimi4ing the neoliberal free-mar*et paradigm o(er the past <uarter-century, and its research department has been (ital to this role& .rom the mid- $FBs on, the Ban* faced mounting criticism for lending money to pro;ects that cause large-scale en(ironmental damage& +he National Highway pro;ect cutting across Ama4on rain forests in Bra4il, Sardar Saro(ar 0am on Narmada /i(er in )ndia are some of the World Ban* pro;ects se(erely critici4ed by many& 0ue to these criticisms, the Ban* has made enormous strides in its reform& )ts rhetoric has changed enormously& )t now (oices the need to go beyond pro;ects Nbeyond e(en policiesNto change institutions& )t tal*s not ;ust about limiting the role of the state, but about creating a more effecti(e state& )t discusses the impact of corruption on de(elopment, when only a few years ago this would ha(e been (iewed as crossing the di(iding line between economics and politics& )t articulates the need to ta*e a comprehensi(e approach to de(elopment that sees de(elopment as a transformation of society& And it tal*s about putting the country in the dri(er9s seat, about participation and ownership, and about the salience of po(erty& +his change in rhetoric has had an impact on thin*ing about de(elopment both in de(eloping countries and inside the Ban* itself&

"B

G0TT , The World Trade /rganization

+he World +rade 3rgani4ation 1W+32 that was established on #anuary $$G is a more formal, institutionali4ed (ersion of the 'eneral Agreement on +ariffs and +rade 1'A++2, signed by twenty-three go(ernments in $%6& +he 'A++M W+3 system regulates international trade in goods and ser(ices using a system of ob;ecti(es and rules laid out in articles of agreements among member go(ernments& Ki*e the )-. and the World Ban*, it also e:ists as a broader institution, in this case consisting of trade representati(es sent from member countries to meetings organi4ed at a number of le(els, and thousands of specialists, consultants and lobbyists who e:ercise considerable power ! the intricacies of trade regulations in(iting e:pertise& +he W+3 operates within a discourse that, while changing in emphasis o(er time, has consistently ad(ocated the 8liberali4ation of trade9 ! that is, the freeing of international mo(ements of commodities and 1recently2 ser(ices from go(ernmental restraint& +rade liberali4ation is one of the leading aspects of the post-war economic regime that led to global neoliberalism& But while the 'A++ was relati(ely uncontro(ersial, the W+3, as a leading proponent of neoliberal ideas, is at the center of contro(ersy o(er the direction globali4ation has ta*en&

<istory of the G0TT

+he idea that trade between countries should be freed from go(ernmental inter(ention is actually <uite new& .or most of its GBB-year history, capitalism was directed by mercantilist policies in(ol(ing state restrictions on imports, and incenti(es for e:ports, as a way of increasing national power, concentrated in the political might of the state& +rade liberali4ation ! that is, the freeing of trade from state imposed restrictions ! and the increased integration of national economies that followed, began in earnest with the 5obden!5he(alier +reaty of FCB, an interstate, bilateral agreement to reduce tariffs 1state import ta:es2 on goods e:changed between Britain and .rance& )t was followed by a series of bilateral trade agreements elsewhere in 7urope& )n the second half of the nineteenth century international trade e:panded rapidly, with the global economy becoming more regionally speciali4ed, especially between an industrial core and an agricultural periphery, and more integrated by trade relations and in(estment flows, than at any time pre(iously and, arguably, more than at any time since, including the globali4ation of the turn of the twentieth century& After the Second World War the tendency was to establish international organi4ations in the search for a new *ind of global economic stability& )nitially, the idea was to establish three main international institutions, the )-. and )B/0, and an )nternational +rade 3rgani4ation 1)+32 that would regulate trade, as a necessary complement to the other two organi4ations& )ndeed, the USA chaired a preparatory conference in $%A to draft a charter for the )+3& +he USA wanted an organi4ation that would free up trade in the specific interests of large, e:porting corporations, but with a mar*et-oriented, deregulated international economy more generally in mind& As the main source of funds for the reconstruction of 7urope in the post-Second World War period, and as the world9s most powerful "

economy, an emergent USA could e:ert considerable political pressure in gaining foreign acceptance for the economic policies its corporations wanted and in charting the e(entual course of trade agreements& .our preliminary conferences on trade were con(ened under UN auspices, a 8Hreparatory 5ommittee9 meeting in Kondon in $%C@ a 80rafting 5ommittee9 meeting at Ka*e Success, NE, in $%6@ the 'ene(a 5onference later in $%6@ and the Ha(ana 5onference, lasting between No(ember $%6 and -arch $%F& +he 'ene(a 5onference produced an interim measure *nown as the 'eneral Agreement on +ariffs and +rade 1'A++2& +he following international conference in Ha(ana, 5uba, was supposed to draft a charter for a regulatory organi4ation, the )+3, that would gi(e the 'A++ its organi4ational enforcing mechanism& A US State 0epartment proposal for the )+3 was hea(ily amended in the UN, howe(er, e(o*ing, in turn, opposition from the US 5ongress& +he greatest problem for 5ongress lay in granting authority to a UN organi4ation, the proposed )+3, to ma*e agreements, or impose sanctions, that might threaten US national interests& +he organi4ation would be able to (eto congressional decisions and the 5harter for the )+3 could be amended by a two-thirds ma;ority, with members not in agreement, or not in compliance with its rulings, potentially e:pelled from the organi4ation& +hus the USA was not willing to commit to trade policies that might, potentially, hurt the domestic economy for the sa*e of international economic stability& +he USA was specifically opposed to an international organi4ation controlled by UN-type international democracy, with each nation-state ha(ing one (ote, at a time when the USA considered itself to be far more than one country in terms of economic power and political might& As a result, legislation appro(ing the )+3 agreement reached in Ha(ana ne(er emerged from the US 5ongress& +he earlier 'A++, by comparison, was a more tenuous agreement, easily manipulated by powerful countries because it lac*ed an enforcing organi4ation& Any member country could (oluntarily withdraw from the agreement, or selecti(ely bend the rules, whene(er necessary& +his left the agreement 8fle:ible and pragmatic,9 e(en though in practice, with the intricacies of trade, the 'A++ necessarily came to be treated somewhat li*e an international organi4ation& +his is how a tentati(e agreement became the 8rule boo*9 go(erning the world9s commerce in commodities&

The early G0TT rounds

With the failure of the )+3 to get off the ground, go(ernments re(erted to the pro(isional agreement on trade and tariffs agreed to at 'ene(a in $%6 and signed on G No(ember $%6 at the Ha(ana 5onference& +he 'A++ regulated trade in goods 1physical commodities2 using agreed-upon principles of liberali4ation, e<ual mar*et access, reciprocity, non-discrimination and transparency& +a*ing these in turn, the principle of trade liberali4ation and e<ual mar*et access essentially in(ol(ed reducing tariffs and deregulating trade in the belief that state inter(ention disrupted the naturally efficient wor*ings of the mar*et& +he principle of reciprocity meant that if one country made tariff concessions, another country had to do the same& +he principle of nondiscrimination meant gi(ing all *inds of trade between all types of countries 8e<ual and fair treatment9@ within this, the most fa(ored nation 1-.N2 principle meant that formal agreements between any two member countries had to apply to all members, while the National +reatment policy stated that any member of the 'A++ had to treat foreign firms in the same way as domestic firms with regard to trade& .inally, the principle of transparency declared that protectionist ""

measures employed by go(ernments should be clearly stated and ta*e a (isible form 1for e:ample, as a tariff2, this being aimed at eliminating non-tariff barriers, such as systematic obfuscation by customs officials& +he basic idea behind the 'A++ was to eliminate protectionism and discrimination, allowing the trade in goods 1but not yet in ser(ices2 to flow smoothly from one country to another, without disruption or distortion, supposedly permitting all countries to achie(e larger output le(els, and ultimately increasing the le(el of economic growth e(erywhere& +he 'A++, in other words, attempted to resurrect the classically liberal free-trade principles of the nineteenth century, with more of an appeal to the notion of growth being uni(ersally beneficial& Hence the Hreamble to the thirty-eight Articles of Agreement read as follows, "A 'o(ernments, recogni4ing that their relations in the Oeld of trade and economic endea(or should be conducted with a (iew to raising standards of li(ing, ensuring full employment and a large and steadily growing (olume of real income and effecti(e demand, de(eloping the full use of the resources of the world and e:panding the production and e:change of goods@ and being desirous of contributing to these ob;ecti(es by entering into reciprocal and mutually ad(antageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce@ agree through their /epresentati(es =to thirty-eight Articles of Agreement>& 1'A++ $CC2 Since the 'A++ lac*ed an organi4ational structure, the )nterim 5ommission for the )nternational +rade 3rgani4ation within the UN ser(ed as an administrati(e body regulating the agreement& +his pro(isional 'A++ Secretariat subse<uently coordinated eight rounds of multilateral trade negotiations among an increasing number of countries o(er the ne:t half-century& +he first round in 'ene(a in $%6 resulted in %G,BBB tariff concessions on trade in goods between the twenty-three attending countries& +he following three rounds of negotiations resulted only in unilateral and bilateral tariff concessions among attending countries, twenty-nine countries attended the $%$ Annecy /ound in .rance, resulting in modest tariff concessions@ thirty-two countries participated in the +or<uay /ound in the UK in $GBMG , resulting in F,6BB tariff concessions@ and a further meeting at 'ene(a in $GGMGC, with thirty-three countries participating, resulted in modest tariff concessions& +a*ing place after the formation of the 7uropean 7conomic 5ommunity 17752 in $G6, the 0illon /ound, named after the US secretary of the +reasury who led the tal*s, too* place in $CB and $C with thirty nine contracting parties& +his round tried to ensure that regional trade agreements did not raise a(erage tariff le(els among other trading partners& +he Kennedy /ound, named for the US president, with discussions lasting from $CA to $C6, and forty-si: countries participating, produced a new formula for negotiating tariff concessions in industrial products that resulted in tariff reductions on AG percent of the attending countries9 trade in these goods& +his was the first round to negotiate non-tariff barriers to trade& +he Kennedy /ound e:tended the anti-dumping code adopted by the 'A++ 1that is, restricting a country9s ability to dump goods elsewhere at prices below the cost of production2& And it also discussed, in detail, preferential treatment for de(eloping countries& +he +o*yo /ound, lasting from $6A to $6$, attended by B" countries, resulted in further tariff concessions on thousands of industrial and agricultural products, in the adoption of codes addressing subsidies and "A

counter(ailing duties, with discussions on technical barriers to trade, mainly product standards, go(ernment procurement, customs (aluations, importlicensing procedures and re(isions to the antidumping code& +he +o*yo /ound ended at a time of economic crisis, mar*ed by deep stagflation& -any countries were using 1unregulated2 non-tariff barriers to restrict imports, while entire economic sectors, such as agriculture and te:tiles, were slipping beyond 'A++ control& Howerful countries, such as the USA, simply inter(ened directly and unilaterally, rather than through the 'A++, when they saw (ital economic interests threatened& State industrial policies, such as those pursued by the #apanese -inistry of +rade and )ndustry, were seen to be more effecti(e in producing economic growth than free trade& )t was widely thought that the 'A++ was close to being finished& Howe(er, the rise of neoliberal ideology ! with right-wing regimes assumed political power in the USA, the UK, West 'ermany and elsewhere late $6Bs and early $FBs - .ree trade was a central component of this selecti(e re(i(al of liberal principles& 0ue to this, the political-economic balance of power swung against domestically oriented industries and in fa(or of transnational corporations, especially the new fringe of high technology firms interested in trade-related issues such as secure e:ports and the protection of intellectual property rights, which they thought could be protected only by international agreements, such as a renewed and e:tended 'A++&

The =ruguay Round

+hus the last negotiations to ta*e place under the 'A++, the Uruguay /ound, signified a new phase in world trading history within a new era of neoliberal globali4ation& +he round attempted to eliminate e:port subsidies on agricultural goods and te:tiles and dealt with non-tariff barriers, technical aspects of trade and trade related in(estment measures& +he round produced a particularly large number of new trade agreements& +he Agreement on +e:tiles and 5lothing established a fi:ed <uota on the <uantity of te:tiles e:ported from the +hird World, to be phased out o(er ten years& +he Agreement on Agriculture eliminated all e:port subsidies for agricultural products o(er si: years for de(eloped countries, ten for less de(eloped countries, with the least de(eloped countries being e:empted from the agreement& All state subsidies to farmers were classified according to their impact on production& Subsidies with minimal lin*age to the <uantities produced, the inputs used, or prices paid, were classified in a 'reen Bo:, and not sub;ect to reduction& 3ther subsidies, including mar*et price supports, were classified in an Amber Bo:& Amber Bo: subsidies are sub;ect to an o(erall limit called the Aggregate -easure of Support 1A-S2, which was capped, and had to be reduced by "B percent o(er si: years for de(eloped countries& Specific payments lin*ed to <uantities produced, but sub;ect to output controls, were classified in a Blue Bo:& +hese are also e:cluded from the A-S and are e:empted from reduction& +he Agreement on Subsidies and 5ounter(ailing 0uties called for the elimination of e:port subsidies meant to increase e:ports, or to ma*e domestic products preferable to imports, by #anuary $$F for de(eloped countries, and "BBA for de(eloping countries, with the least de(eloped countries e:empt, and also called for the elimination of counter(ailing duties implemented to offset the effects of e:port subsidies by importing countries& +he Uruguay /ound again re(ised the Anti-0umping 5ode and made in(estigation of (iolations more stringent& +he Uruguay /ound also established the W+3 as enforcing organi4ation& "%

+hree trade agreements co(ering entirely new areas emerged from the Uruguay /ound, 'A+S, +/)Hs and +/)-s The General 0greement on Trade in er*ices 7G0T 2 is described by the W+3 Secretariat as 8perhaps the most important single de(elopment in the multilateral trading system since the 'A++ itself came into effect in $%F9 1W+3 Secretariat $$$2& +he 'A+S e:tended internationally agreed rules and commitments, comparable to those of the 'A++ dealing with physical commodities, into the rapidly growing area of the international e:change of ser(ices, e<ui(alent in (alue to about one-<uarter of the international trade in goods& The 0greement on Trade6Related 0s.ects of Intellectual !ro.erty Rights 7TRI!s2 claims that widely (arying standards in the protection and enforcement of intellectual property rights, together with lac* of a multilateral framewor* of principles, rules and disciplines dealing with international trade in counterfeit goods, ha(e been a growing source of tension in international economic relations& )n response, the +/)Hs agreement addresses the applicability of basic 'A++ principles, together with those of already e:isting international agreements, to the pro(ision of intellectual property rights@ enforcement measures for those rights@ and multilateral dispute settlement procedures& Authors of computer programs and producers of sound recordings and films are gi(en the right to authori4e or prohibit the commercial rental of their wor*s to the public through +/)Hs& Herformers are gi(en protection from unauthori4ed recording and broadcast of li(e performances 1bootlegging2 for fifty years& +here are a number of other similar pro(isions for trademar* and ser(ice mar*s, geographical indications, industrial designs, and so on& +he agreement re<uires that twenty-year patent protection be a(ailable for all in(entions, whether products or processes, in almost all fields of technology& 'o(ernments ha(e to pro(ide for criminal procedures and penalties at least in cases of willful trademar* counterfeiting or copyright piracy on a commercial scale, with remedies including imprisonment and fines sufficient to act as a deterrent& +he agreement establishes a 5ouncil for +/)H /ights to monitor the operation of the agreement and go(ernments9 compliance with it& 0ispute settlement ta*es place under the integrated 'A++ dispute-settlement procedures as re(ised during the Uruguay /ound& +he Agreement on +rade-/elated Aspects of )n(estment -easures 1+/)-s2 deals with in(estment issues thought to restrict and distort trade& )t pro(ides that no contracting party shall apply any +/)- inconsistent with Articles ))) 1national treatment2 and P) 1prohibition of <uantitati(e restrictions2 of the 'A++& An illustrati(e list of +/)-s includes measures against re<uiring particular le(els of local procurement by an enterprise 18local content re<uirements92 or measures that restrict the (olume or (alue of imports an enterprise can purchase or use to an amount related to the le(el of products it e:ports 18trade-balancing re<uirements92& +he agreement re<uires mandatory notification of all nonconforming +/)-s, and their elimination within two years for de(eloped countries, fi(e years for de(eloping countries and se(en years for least de(eloped countries& )t establishes a 5ommittee on +/)-s that monitors the implementation of these commitments& +he agreement finali4ing the Uruguay /ound was signed in the -oroccan city of -arra*esh in $$% and was, for the most part, routinely appro(ed by the legislatures of member countries& +he Uruguay /ound (astly e:panded the co(erage of international trade agreements and greatly increased the power of the global institution responsible for regulating what were now mo(ements of "G

goods, ser(ices, ideas and capital& Under the W+3, ministerial meetings ha(e subse<uently been held at Singapore in $$C, 'ene(a, $$F, Seattle, $$$, and 0oha, Iatar, in "BB , 5ancun "BBA, Hong Kong "BBG, 'ene(a "BB$ and "B , Bali "B A&

The WT/
+he W+3 is headed by a -inisterial 5onference that is supposed to meet at least e(ery two years& Below this is the 'eneral 5ouncil, normally made up of trade ambassadors and heads of delegations, but sometimes attended by officials sent by member counties to meetings held se(eral times a year in 'ene(a& +he 'eneral 5ouncil also meets as the +rade Holicy /e(iew Body 1+H/B2 and the 0ispute Settlement Body 10SB2& +he W+3 has procedures for resol(ing trade issues under the 0ispute Settlement Understanding ! under this, countries bring disputes to the W+3 if they thin* their rights under agreements are being infringed, and ;udgments are made by specially appointed independent e:perts& Numerous speciali4ed committees, wor*ing groups and wor*ing parties deal with indi(idual agreements and other areas, such as the en(ironment, de(elopment, membership application and regional trade agreements& +hree other wor*ing groups deal with the relationship between trade and in(estment, the interaction between trade and competition policy, and transparency in go(ernment procurement& +he e:isting councils and committees e:amine the area of electronic commerce& +he W+3 Secretariat, based in 'ene(a, has a staff of GGB, mostly lawyers, and is headed by a director-general and a deputy directorgeneral& +he GA members of the W+3, as of "BBF, account for almost BB percent of world trade& +wo-thirds of the members of the W+3 are 8de(eloping nations,9 although the descriptions 8de(eloped9 and 8de(eloping9 are self-designations& 0e(eloping countries are granted longer time periods for implementing agreements and commitments& Kegally the W+3 (otes differently than the )-. or World Ban* ! one country, one (ote& But such a (ote has ne(er been ta*en& )nstead decisions are made by consensus& W+3 agreements ha(e to be subse<uently ratiOed by member states& +hus, when the USA agreed to W+3 membership, 5ongress tac*ed on a special stipulation stating that if three or more issues were decided against the USA in the 0SB in one year, the USA must opt out of the organi4ation& +he W+39s declared ob;ecti(e is to 8help trade flow smoothly, freely, fairly and predictably&9 )t claims to do this neutrally, by administering trade agreements, acting as a forum for trade negotiations, helping to settle trade disputes, re(iewing national trade policies, pro(iding assistance to de(eloping countries in trade policy issues through technical assistance and training programs, and cooperating with other international organi4ations& +he W+3 claims that its Secretariat does not ha(e decision-ma*ing capacities li*e those granted to other international bureaucracies& )nstead the Secretariat9s duties include supplying technical support for the (arious councils and committees and the -inisterial 5onferences, pro(iding technical assistance for de(eloping countries, analy4ing world trade and e:plaining W+3 affairs to the public and media& +he Secretariat also pro(ides legal assistance in the dispute settlement process and ad(ises go(ernments wishing to become members of the W+3&

"C

WT/ trade discourse

)n terms of 8e:plaining W+3 affairs to the public and media9 the W+3 claims ten benefits for the trading system it administers, & The WTO/GATT system contributes to international peace & Smoothly flowing trade helps people become better off@ and more prosperous, contented people are less li*ely to Oght& "& The system allows disputes to be handled constructively & Nearly two hundred disputes ha(e been brought to the W+3 since $$G& Without a means of tac*ling these constructi(ely and harmoniously, some could ha(e led to more serious political conflicts& A& A system based on rules rather than power makes life easier for everyone & 0ecisions in the W+3, made by consensus, with agreements ratified in all members9 parliaments, apply to rich and poor countries ali*e& +he result for smaller countries is increased bargaining power& %& reer trade cuts the cost of livin!" All people consume& +he prices paid for food and clothing are affected by trade policies& Hrotectionism raises prices& By comparison, the W+39s global system lowers trade barriers through negotiation and results in reduced costs of production, reduced prices of finished goods and ser(ices, and ultimately a lower cost of li(ing&

G& The system !ives consumers more choice# and a broader ran!e of $ualities to choose from& 7(en the <uality of locally produced goods can impro(e because of competition from imports& C& Trade raises incomes& Kowering trade barriers allows trade to increase, which adds to national and personal incomes& +he W+3 estimates that the $$% Uruguay /ound trade deal added between J B$ billion and JG B billion to world income, depending on the assumptions behind the calculations& 6& Trade stimulates economic !rowth and that means more ;obs& )t is also true that some ;obs are lost e(en when trade is e:panding& But there are problems in reliably analy4ing this& Some countries, howe(er, are better at ma*ing the ad;ustment than others& +hose without effecti(e policies are missing an opportunity& F& The basic tradin! principles make the system economically more efficient and cut costs& +rade allows a di(ision of labor between countries and lets resources be used more effecti(ely& But the W+39s trading system also further increases efficiency because, under W+3 rules, go(ernments charge the same duty rates on imports from all countries, and use the same regulations for all products, whether imported or locally produced& +his ma*es life simpler for companies as sourcing components becomes more efficient and costs less& $& The system shields !overnments from narrow interests & +he 'A++!W+3 system helps go(ernments ta*e a more balanced (iew of trade policy& 'o(ernments are better placed to defend themsel(es against lobbying from narrow interest groups by focusing on tradeoffs made in the interests of e(eryone in the economy& B& The system encoura!es !ood !overnment & Under W+3 rules, once a commitment has been made to liberali4e a sector of trade, it is difficult to re(erse& +he rules also discourage a range of unwise policies& .or "6

businesses, this means greater certainty and clarity about trading conditions& .or go(ernments it can often mean good discipline& +a*en as a whole, these ten benefits elaborating the basic position on trade, growth and incomes, laid out originally in 'A++ $%6 and updated by the W+3, constitute a coherent economic discourse, classical liberalism&

Criti;ue of WT/
We must Orst deal with the W+3 as an institution regulating the conditions of trade& +he W+3 presents itself as a neutral place where go(ernments can ma*e agreements about trade and resol(e the disputes that ine(itably arise in an e<uitable way& +he W+3 con(eys the impression that member go(ernments, meeting in the (arious councils and committees that con(ene under W+3 auspices, ma*e the basic decisions, and the organi4ation merely carries them out& Eet as the ten beneOts cited by the W+3, and listed abo(e, clearly show, the organi4ation does not adopt a neutral stance on trade policy& )t is passionately against protectionism and ;ust as profoundly for trade liberali4ation& +he W+3 says that it merely pro(ides the forum within which countries decide how low barriers should fall and that it ad;udicates the rules written into agreements on how liberali4ation ta*es place ! that barriers be lowered gradually so that domestic producers can ad;ust, for instance, or that special pro(isions for de(eloping countries be ta*en into account& Here, the W+3 says, its ob;ecti(e is 8fair trade,9 as in non-discrimination, or ensuring that conditions for trade are stable, predictable and transparent& )n other words, the W+39s interpretation of 8fairness9 is limited to the e:act conditions under which free trade occurs ! that countries follow the rules, act in transparent ways, and so on& With this narrow restriction, trade can operate 8fairly9 under a system that more generally fa(ors some interests while harming another& +his is a (ision of societies as consumer, rather than wor*er, democracies, with consumption rather than labor as source of freedom ! a nice, populistconsumerist addition to the o(erall neoliberal discourse& +he general point is this, the W+3 does not practice organi4ational, bureaucratic neutrality& As an organi4ation it has a total commitment to a single, well-defined and elaborated, carefully defended, ideological position, free trade 8fairly ad;udicated9 that benefits people as consumers& )n what follows, the W+3 will be ta*en to be an organi4ation with an ideological mission& +he main point, howe(er, is not personalities but whether indeed trade produces economic growth and higher incomes for poor countries& +he UN5+A0 +rade and 0e(elopment /eport for "BB" addressed the <uestion, why are de(eloping countries trading more, yet earning lessL +he report notes that the past two decades ha(e seen a rapid opening up to trade in de(eloping countries& )ndeed, trade (olumes in de(eloping countries ha(e grown faster than the world a(erage& 0e(eloping countries now account for one-third of world merchandise trade, and much of the increase in trading (olume has been in manufactures& +he UN5+A0 report notes, howe(er, that this massi(e increase in e:ports has not added significantly to de(eloping countries9 income& -any countries ha(e been unable to shift production out of primary commodities such as agriculture and natural resources& +he mar*ets for these products ha(e been stagnant and prices tended to go down in the long run 1with the e:ception of fuel2& 5ountries that shifted production from primary commodities to manufactures focused on "F

resource-based, labor-intensi(e products, which generally lac* dynamism in world mar*ets and ha(e a lower (alue-added& /eliance on e:ports of laborintensi(e manufactures to gal(ani4e growth in the face of declining commodity prices has been a common de(elopment policy& +his led to many simultaneous e:port dri(es, causing falling prices and intense competition for foreign direct in(estment 1.0)2, and hence a wea*ened bargaining position for de(eloping countries& As a result, de(eloping countries end up competing with each other on the basis of wage le(els& UN5+A0 concludes that the liberali4ation of trade and .0) should no longer be the sole focus of de(elopment agencies& )nstead, de(eloping countries, and the de(elopment agencies that impose conditionalities on them, should ensure that trade policies are designed to ma:imi4e domestic growth and de(elopment& Howe(er, most of the criticism on W+3 is centered on the +/)Hs agreement emerging from the Uruguay /ound& +/)Hs applies basic 'A++ principles and e:isting international agreements to intellectual property rights with the W+3 as ad;udicator& +he agreement has raised concerns about the centrali4ation of control o(er multiple forms of 8intellectual property9 1*nowledge and its products2 in multinational corporate hands& +he pharmaceutical industry was a ma;or player in the agreement& +his is a highly concentrated industry in which ten companies control GB percent of global sales mainly in de(eloped countries 1"G percent of the world9s people consume $B percent of the drugs2& +he main benefits of +/)Hs ha(e gone to the international pharmaceutical industry, which aggressi(ely protects a highly profitable business with the intensi(e use of political power ! trade sanctions, withdrawal of aid, and so on& +he most contro(ersial issue in(ol(es drugs for people suffering from A)0S& Some of the main national actors include )ndia, where the pharmaceutical industry was regulated by the fiercely nationalistic )ndia Hatents Act of $6B& +his act fostered the phenomenal growth of the pharmaceutical industry that came to be regarded by UN5+A0 as a model for de(eloping countries& )n the mid- $$Bs prices for four typical drugs were ten times more e:pensi(e in Ha*istan, se(enteen times more e:pensi(e in Britain and thirty-se(en times more e:pensi(e in the USA than in )ndia& A year9s worth of AQ+ therapy could be bought in )ndia for JGBB, compared with J B,BBB! G,BBB elsewhere& )n Bra4il, the state produces most of the AQ+ drugs and pro(ides them free, cutting the A)0S infection rate in half 1/osenberg "BB 2@ and in South Africa, where "B percent of the people are H)D-positi(e, the minister of health was gi(en permission in $$F to import )ndian drugs and cheap pirate copies& +hirty-nine drug companies brought suit against the South African go(ernment to pre(ent this, but the suit had to be withdrawn under public outcry in "BB , with the drug companies forced to reduce prices on limited <uantities of drugs pro(ided to +hird World countries& +he USA, howe(er, continued to pressure Bra4il to stop unlicensed production& )n "BB6, in a landmar* decision, the High 5ourt in 5hennai upheld )ndia9s Hatents Act in the face of a challenge by Swiss pharmaceutical company No(artis, the world9s third-largest pharmaceutical corporation, which hoped to secure patent rights for its 'lee(ec cancer med& No(artis claimed that )ndia9s patent law was not in line with the country9s W+3 obligations& Half a million people signed a petition, distributed by 0octors without Borders, calling on No(artis to drop this case& )ndia is the primary supplier of cheap generic drugs to the rest of the world& 0issatisfied with the 5hennai High 5ourt (erdict No(artis gone to the Supreme 5ourt of )ndia and used all the means 1material and intellectual2 resources to re(erse the decision& Howe(er, )ndia9s Supreme 5ourt upheld the earlier High 5ourt (erdict in "B A& "$

Similarly, the 0oha round of W+3 negotiations brought agriculture into the forefront& +he de(eloped countries that are gi(ing huge subsidies to their farmers are refusing to reduce the same while demanding de(eloping countries to reduce all their support to the agriculture sector& At the W+3, a group of middle-income agricultural e:porting countries, the '"B 1'roup of "B, also (ariously *nown as the '" , '"" and '"BR2, which includes Argentina, Bra4il, 5hina, )ndia, )ndonesia, -e:ico and South Africa, pressed for an end to agricultural subsidies in industriali4ed nations& Specifically, they called for the elimination of e:port subsidies on products of interest to de(eloping countries, the reduction of tariffs, and designation of 8Special Hroducts9 by de(eloping countries 1i&e& allowing protection for products important to a de(eloping country9s food security2& Howe(er, so far the de(eloping countries resisted pressure from the de(eloped countries& +he #uly "BBC tal*s in 'ene(a failed to reach an agreement about reducing farming subsidies and lowering import ta:es& 0irector-'eneral Hascal Kamy said there were no significant changes in the negotiators9 positions and the gaps remained too wide& .aced with this, Kamy recommended suspension of the 0oha negotiations to 8enable the serious reflection clearly necessary on the part of participants&9 .inally, in #uly "BBF, in meetings in 'ene(a, a last attempt was made at concluding the eight-year-old 0oha /ound& +rade ministers from thirty selected delegations con(ened in 8'reen /oom9 negotiations ! the list of countries in(ited was not made public, nor is there a formal record of discussions in these 8informal meetings,9 leading the left-out countries to complain about 8lac* of transparency&9 +he )ndian commerce minister, Kamal Nath, ob;ected to the double standard of de(eloped countries wanting 8car(e outs9 1special treatment or e:emptions2 for themsel(es to continue to protect their rich farmers, while denying )ndia and other de(eloping countries the possibility of defending the li(elihoods of their poor farmers& +he )ndian delegation insisted that there be protections for their farmers from the surge in imports that ine(itably follows tariff cuts& .aced with rising food prices, a number of +hird World countries, led by )ndia and 5hina, opposed opening up their agricultural mar*ets, either by bloc*ing imports of strategic products, such as rice or grains, or through rules that would allow them to rapidly increase 8safeguard9 tariffs if faced with a sudden flood of imports& +he USA and the 7U proposed a threshold before such support could be gi(en that was too high to be meaningful& Bac*ed by many other countries, )ndia held its ground& +he tal*s collapsed& +he 7U +rade 5ommissioner said that this 8buried9 the 0oha /ound& )n the aftermath, the con(entional wisdom became, 8the era in which free trade is organi4ed around rules set in the West ! with de(eloping nations following along ! definitely appears o(er, and few are mourning its demise& 7(en in America ? ad(ocates of the system are on the defensi(e9&

Conclusion
.or years 'A++ operated (irtually without opposition from social mo(ements& But during the Uruguay /ound of negotiations the reali4ation de(eloped among many ordinary people that more than ;ust tariffs were being negotiated& 3pposition by small farmers, labor unions and en(ironmentalists began to build& And it was recogni4ed that significant aspects of national so(ereignty would be lost to an organi4ation, the W+3, which no one had elected& A number of N'3s, representing citi4ens9 groups, en(ironmentalists, labor, anti-corporate and antiAB

globali4ation mo(ements, showed increased interest in the effects of free trade& +he 'A++ ministerial meeting in Brussels in $$B was met by thousands of demonstrators& At the $$" /io 7arth Summit N'3s tried to introduce alternati(e treaties that opposed 'A++& At present, unable to find common ground to ma:imi4e the interests of de(eloped, de(eloping and underde(eloped countries, the W+3 failed to achie(e considerable progress from "BBB onwards& -ost of the W+3 /ounds were unable to brea* grounds to identify common set of norms which can protect e(eryone9s interests& Hence, the stalemate continuous&