Bretton Woods Institutions at 80: What should the future look like?

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On the eightieth anniversary of the World Bank and the International Monetary Fund, it is time for a change of course. In this blog, our experts on the Bretton Woods Institutions explain why the world is in urgent need of more responsive, democratic, accountable and development-orientated. global economic governance. 

The World Bank and the International Monetary Fund (IMF) - collectively known as the  Bretton Woods Institutions - were established in July 1944 at a conference held in Bretton Woods, New Hampshire (USA). Representatives of just 44 nations were invited to the Conference, which agreed a series of new rules for the post-World War II international financial and monetary system. 

Eighty years on, the world has changed almost beyond recognition. Yet, the Bretton Woods Institutions have repeatedly demonstrated how outdated and ill-equipped they are to adapt and respond to the changing context. Consequently, they are unable to address the complex realities of the 21st century. The world is in urgent need of more responsive, democratic, accountable and development-orientated. global economic governance. It is time for a change of course.

Colonial and neoliberal roots

A large part of the problem lies in the Bank and the Fund’s undemocratic governance structure, combined with their weak system of accountability . Since their creation, both institutions have been governed by a system with a high democratic deficit that privileges countries with economic power and underrepresents the global south. To date, changes in their voting power have amounted to mere baby steps that have maintained an anachronistic structure reflecting the distribution of power among the allied countries following World War II, long before the majority of the world gained their independence. A clear example of these deep colonial roots is the 'gentlemen's agreement’ between the US and Europe by which the former appoints the President of the World Bank, while the latter the Managing Director of the IMF. These profound democratic deficits, power asymmetries and (neo)colonial governance continue to undermine the institutions’ legitimacy and credibility to this day.

The Bretton Woods Conference, taking place at the inception of the Cold War, served as the embodiment of the Western powers’ agreement to promote a free market system, reducing barriers to international trade and capital movements. The IMF and the World Bank were designated as the guarantors of this model, with the ability to finance countries that aligned with these policies. Moreover, the Bretton Woods Institutions have been key promoters of structural adjustment and austerity policies that have undermined peoples’ rights and state capacity to deliver in the public interest. Kenya is the most recent example of a long list of countries undertaking harmful austerity packages following IMF and World Bank advice or conditionalities. And the social mobilisations seen across the country a couple of weeks ago were spurred by the approval of tax hikes adhering to the conditionalities of an IMF programme

Sovereign debt is at the core of the austerity push. As global south countries face a new debt crisis, the IMF and World Bank’s response has changed little since the last debt crises: providing multilateral financing so countries can pay off their private creditors, and prescribing fiscal consolidation (public spending cuts and regressive tax hikes) along with other austerity measures, including privatisation, public private partnerships and financial deregulation. A recipe that already resulted in a lost decade for development  in the 1980s and ‘90s. Under the pretext of positivist economics (a technocratic view privileging efficiency over rights), the Bretton Woods Institutions still impose the same neoliberal ideology and market-based development model.  

The World Bank, in particular, is a driving force behind the Wall Street Consensus, which centres development interventions around serving private finance interests. This further exacerbates the financialisation of every aspect of our lives. Recent attempts by the World Bank Group to reform, notably via its Evolution Roadmap, have proved disappointing as they, yet again, centre the Bank as a facilitator in mobilising private capital, the same approach that failed many years ago to provide the promised “trillions” in development finance. Continuing down this road risks deepening existing structural inequalities that helped to cause the crises that the World Bank now allegedly seeks to address.

Is a decolonial future possible for the Bretton Woods twins?

There is a lively debate about whether or not the current reform agenda risks further expanding the influence of the Bretton Woods Institutions, even while their lack of accountability and illegitimate governance remains unaddressed. Global south countries have been calling for a comprehensive reform agenda, not limited to merely boosting the multilateral development banks’ and IMF’s coffers, but rather undertaking a profound governance reform that equates their voice and vote in macroeconomic decision-making  to those of their global north counterparts. This reform would be the litmus test for a much more profound transformation needed at the IMF and World Bank. Their vision of development and the global economy, and therefore the institutions’ policies, must be completely overhauled to truly support countries to face the financial, environmental and social challenges that a world in polycrisis poses.  

While such changes seem unattainable, the international community is soon approaching its next chance to democratise global economic governance. For many in civil society, the Fourth United Nations International Conference on Financing for Development (FfD4), taking place in Sevilla (Spain) in late June next year, offers a unique space to address international financial architecture reforms. As the Bretton Woods Institutions mark their eightieth anniversary, a fundamental restructuring of the institutions’ missions and vision is vital. The Institutions’ domination by a select group of global north countries must be revamped. Additionally, there is an urgent need to turn away from the emphasis on market creation as a route to poverty alleviation. Instead, development must be focused on strengthening public institutions and public services, rooted in principles of global solidarity. In response, the FfD4 Conference must deliver on a UN intergovernmental process to  reform the Bretton Woods Institutions and Multilateral Development Banks. Such a process must review their governance, policies and practices,  to build more inclusive, transparent, accountable and democratic institutions, with a rights-centred approach to development. Anything less will be a missed opportunity.