The International Monetary Fund in historical perspective

Journal of International Economic Law

Volumn 3, Issue 3, 2000, Pages 507-523

  Lastra, Rosa Maria ^a  

^a QUEEN MARY UNIVERSITY OF LONDON   (United Kingdom)

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EID: 0034376856     PISSN: 13693034     EISSN: None     Source Type: Journal    
DOI: 10.1093/jiel/3.3.507     Document Type: Review

References (38)

1. An excellent historical account of the ITO (in the context of the Bretton Woods system), GATT, and WTO is provided by John Jackson in chapter 2 of his book The World Trade Organization: Constitution and Jurisprudence (London: Royal Institute of International Affairs (Chatham House Papers) 1998).
2. Harry Dexter White stated in his 1942 draft proposal (reproduced in J. Keith Horsefield (ed), The International Monetary Fund 1945-1965, Volume 3: Documents (Washington DC: International Monetary Fund 1969, at 38)): 'It has been frequently suggested, and with much cogency, that the task of securing defeat of the Axis powers would be made easier if the victims of aggression, actual and potential, could have more assurance that a victory by the United Nations will not mean in the economic sphere, a mere return to the pre-war pattern of every-country-for-itself, or inevitable depression, of possible widespread economic chaos with the weaker nations succumbing to the law-of-the-jungle that characterised international economic practices of the pre-war decade.'
3. In The Economic Consequences of the Peace (cited by Arminio Fraga, 'German Reparations and Brazilian Debt: a Comparative Study', Princeton Essays in International Finance, No 163, July 1986, at 2) Keynes had forcefully argued that the reparations payments discussed in Versailles were far too high. He also argued that post-war prosperity required not only a lower level of reparations but also a cancellation of inter-Ally indebtedness incurred during the war.
4. In The Economic Consequences of the Peace (cited by Arminio Fraga, 'German Reparations and Brazilian Debt: a Comparative Study', Princeton Essays in International Finance, No 163, July 1986, at 2) Keynes had forcefully argued that the reparations payments discussed in Versailles were far too high. He also argued that post-war prosperity required not only a lower level of reparations but also a cancellation of inter-Ally indebtedness incurred during the war.
5. At a meeting of the General Assembly of the United Nations in 1947, the Soviet representative charged that the Bretton Woods Institutions were merely 'branches of Wall Street' and that the Bank was 'subordinated to political purposes which make it the instrument of one great power'. The incident is recalled by Edward S. Mason and Robert E. Asher, The World Bank since Bretton Woods (Washington DC: The Brookings Institution 1973), at 29, fn 46.
6. Ibid at 2.
7. See J. Keith Horsefield, The International Monetary Fund 1945-1965, Volume I: Chronicle (Washington DC: International Monetary Fund 1969), at 5.
8. This proposal is reproduced in Horsefield, above n 2, at 37-82 (though it omits the Articles for the Bank). The final version of White's plan was issued by the US Treasury in printed form on 10 July 1943, and is reproduced on pp 83-96 of the same book.
9. See Harold James, International Monetary Cooperation since Bretton Woods (Washington DC, New York, and Oxford: International Monetary Fund and Oxford University Press 1996), at 35.
10. The fourth draft of his proposal (of 1942) is reproduced in J. Keith Horsefield, above n 2, at 3-18. The final draft, which was issued by the British Government in April 1943 as a White Paper (Cmd 6437), is reproduced in pp 19-36 of the same book. The title of the final British draft dropped the word currency and was simply entitled: 'Proposals for an International Clearing Union".
11. See para 10 of his proposal, reproduced in Horsefield, above n 2.
12. See para 54 of his proposal, reproduced in Horsefield, ibid.
13. Indeed, as Mason and Asher recall, 'the Bank was essentially a U.S. proposal'. Above n 4, at 13.
14. See James, above n 8, at 52.
15. Nowadays, the name World Bank is given both to the IBRD and to the World Bank Group. The World Bank Group comprises five institutions: the International Bank for Reconstruction and Development (set up in 1944, the original Bretton Woods institution), the International Development Association (set up in 1960 to deal with the world's poorest countries), the International Finance Corporation (set up in 1956, as the private-based arm of the World Bank Group), the Multilateral Investment Guarantee Agency (set up in 1988 to provide insurance against political risk) and the International Centre for the Settlement of Investment Disputes (set up in 1966 for the resolution of investment conflicts).
16. Above n 4, at 2.
17. 'In 1946, the Western European trade deficit with the United States had been $2,356 million, and in 1947 it rose to $4,742 million. In its first year of operation (April 1948-June 1949), the ERP made $6,221 million available, and then $4,060 million in 1949-50 and $2,254 in 1950-51.' Above n 8, at 74.
18. Above n 8, at 46 and 50.
19. Until 1 January 1999, the value of the SDR was determined on the basis of the US$, Japanese Yen, DM, FF, and £Sterling. With the introduction of the Euro, the IMF replaced currency amounts of DM and FF with equivalent amounts of Euros, based on the fixed conversion rates announced on 31 December 1998.
20. See para 45 of Keynes's 1942 proposal, above n 2 at 13; and White's 1942 proposal, ibid at 47 and 63.
21. See para 45 of Keynes's 1942 proposal, above n 2 at 13; and White's 1942 proposal, ibid at 47 and 63.
22. Article VIII(2)(a): '[N]o Member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions.'
23. Nowadays the most advanced economies all have open capital accounts, with no cross-border controls or equivalent taxes and subsidies on international capital transactions.
24. See, e.g., Stanley Fischer et al., 'Should the IMF Pursue Capital Account Convertibility?', Princeton Essays in International Finance, No 207, May 1998.
25. 'The focus of obligation on the part of members centers on the point and the terms of intersection of their national economies with each other - that is the balance of payments, the exchange rate and the exchange regime.' Manuel Guitián, 'The Unique Nature of the Responsibilities of the International Monetary Fund', IMF Pamphlet Series no 46, 1992, at 11.
26. Ibid at 12.
27. The initial formula for the determination of quotas - first estimated by Raymond Mikesell - was a rather unscientific exercise. See, e.g., Ariel Buira, 'Reflections on the International Monetary System', Princeton Essays in International Finance, No 195, January 1995. Buira writes (at 33): '[T]he lack of equity and rationality in the quota criteria continue to cause controversy and mistrust among members today, just as it did fifty years ago.'
28. Above n 8, at 54. Keynes also complained about the predominance of lawyers on the American side of the negotiating table. He observed (ibid) that 'lawyers seem to be paid to discover ways of making it impossible to do what may prove sensible in future circumstances'.
29. See, e.g., Manuel Guitián, 'Conditionality: Past, Present and Future', IMF Staff Papers, December 1995.
30. See IMF Survey of 10 January 2000, at 1.
31. See IMF Survey, 12 January 1998, at 7. This facility has at the international level some of the features that Thornton and Bagehot described for the LOLR at the domestic level. It should be noted that both Thornton and Bagehot wrote their important contributions to the understanding of the LOLR in the 19th century, when crises were mostly confined to the national arena.
32. See Jeffrey Sachs, 'Do We Need an International Lender of Last Resort', paper presented to the Study Group on Private Capital Flows to Developing and Transitional Economies at the Council of Foreign Relations on 5 October 1995. See also Barry Eichengreen and Richard Portes, 'Crisis? What Crisis? Orderly Workouts for Sovereign Debtors', Centre for Economic Policy Research, London 1995.
33. See Jeffrey Sachs, 'Do We Need an International Lender of Last Resort', paper presented to the Study Group on Private Capital Flows to Developing and Transitional Economies at the Council of Foreign Relations on 5 October 1995. See also Barry Eichengreen and Richard Portes, 'Crisis? What Crisis? Orderly Workouts for Sovereign Debtors', Centre for Economic Policy Research, London 1995.
34. The Core Principles for Effective Banking Supervision, adopted by the Basle Committee on Banking Supervision in September 1997, are a step in this direction.
35. Arminio Fraga - current Central Bank Governor in Brazil - has indicated that the IMF should act as 'the permanent auditor of countries, who should voluntarily submit themselves to examination in order to lower their borrowing costs'. See A. Fraga, 'Crises Prevention and Management: Lessons from Mexico', in Peter Kenen (ed), 'From Halifax to Lyons: What has been done about crises management?' Essays in International Finance (Princeton, October 1996), at 54. Fraga also proposes that Article IV consultations be supplemented by quarterly reviews to enhance the credibility of the data released under the IMF's initiatives on better disclosure of country data.
36. See, e.g., Martin Feldstein, 'Trying to do too much'. Financial Times (5 March 1998).
37. There are other problems and disadvantages (in particular, moral hazard incentives) with international bail-outs that I have explored elsewhere. See R. Lastra, 'Lender of Last Resort, an International Perspective', 48(2) International and Comparative Law Quarterly 359-61 (1999).
38. For an analysis of these issues, see, e.g., Institute of International Finance, 'Involving the Private Sector in the Resolution of Financial Crises in Emerging Economies', http://www.iif.com/public.htm (visited 30 April 1999)