1 . What are the Bretton Woods Institutions? = There are two Bretton Woods institutions that were established by the planners at Bretton Woods in 1945. These are International Monetary Fund (IMF) and the World Bank. The IMF works to promote global economic growth and stability to different countries by providing policies and financing nations that are in need. The World Bank, on the other hand, lends money to devastated countries because of war and needful countries for rehabilitation and development programs. 2. What circumstances led to its formation?
There are 2 reasons that I can see that led to the formation of the Bretton Woods institutions based on my research. During the Great Depression, many countries, rich or poor, were affected economically. It was a devastating worldwide economic depression after World War II. And a lot of countries were afraid for this to happen again so this is one of the two reasons why they formed the Bretton Woods Institutions. They formed these institutions to promote global economic growth and stability so that the happening in 1930 won’t happen again.
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Another reason behind he formation of these institutions is the reconstruction of the different countries that were devastated after the World War II. Countries that were devastated after the war needed aid from the US to rebuild their nation. US used this moment to make Britain choose. But since Europe was devastated they had no choice but to accept the aid and let US prosper in the global economy. This moment was very sad for Britain because not only war the affected them terribly but also the turning point where financial power was turned from I-JK to US. 3.
How did this change the relation etween/ among countries and nation states? = The United States of America became more influential than before. This can be seen when France applied for a loan in World Bank. World Bank secured that France will be able to pay the loan. But before they approved the loan, the United States Department told the French Government that it had to remove first its members associated with the Communist Party. The French complied with this and only after hours that the loan was approved. In this scenario we can see how US influenced things to be done.
Focusing on the third world countries, it was difficult for them. The Bretton Woods institutions were focused more on the First world countries that the third world countries cannot cope up with policies of the Bretton Wood Institutions. To make this more specific, here is an excerpt from an essay by Victor Dike about the effect of Bretton Woods institution to third world countries. “Nigeriais external borrowing dates back to the colonial period. The last colonial loan was a 1958 World Bank loan to finance the Borno Railway extension (Dike 1990, p. 3). As we have seen, the experiences of other developing nations suggest that devaluation exert a contradictory impact on real output and employment. Yet they have continued with it. Why? The reasons are contradic-tory. When Nigeria approached the International Monetary Fund in 1983 for loan, the Fund massive cuts in public subsidies in Nigeria (e. g. gasoline) made life difficult for the people. In June 1986 General Babangida announced the Structural Adjustment Program (SAP) for the period of July 1986-June 1988 for the country.
As social scientists have noted, the SAP was a recipe for a chain of social and political instability in Nigeria. There were riots in urban areas across the nation during this period. Many local plants were closed for lack of material inputs and spare parts. The impacts culminated in massive retrenchment of workers. The adverse effects of the SAP programs are still with Nigeria today. The economic recovery programs (the austerity measures and the SAP) were within the policy-framework recommended by the World Bank and the IMF.
The key elements of the SAP programs include: 1). Exchange rate devaluation; 2). Liberalization of export trade; 3). Cut in budgetary spending; 4). Reduction of subsidies; 5) Abolition of subsidized commodity board; 6). Privatization of public enterprises; 7). Rationalization of civil service employment; and 8). Tight monetary policy (Usman, March 1999, as cited in The Guardian, April 28, 1999). Comparatively, it is appropriate to indicate that the IMF and the World Bank operate loan policies that are favorable to the GIO nations (the United States, Great Britain,
Germany, France, Italy, Japan, Canada, the Netherlands, Belgium, and Switzerland. ” In this we can see that these countries would rather sacrifice their domestic economic growth for them to be able to borrow from World Bank. These loan policies should be not only focused on first world countries but also for these countries like Nigeria. As a suggestion, there should be friendly policies based on the domestic growth of a state. So that these institutions can promote global economic stability not only for first world countries but also for these kind of countries.