Bretton Woods: a milestone towards development aid

The interwar period had been plagued by all types of economic disorders:

gross foreign exchange misalignments as countries unwisely returned to the gold standard and then chaotically abandoned it; disruption of trade due to increased tariff barriers; hyperinflation in a number of countries; defaults on war loans and reparations as well as on foreign private loans; and most importantly, the Great Depression. Many of these disorders might have been avoided or their negative impact strongly mitigated by international economic cooperation. The League of Nations had tried to foster such cooperation, but without a clear mandate to deal with economic issues and lacking the necessary instruments, it was unable to do much (Clavin, 2013).

As the victors of WWII envisaged a new world order, they considered those omissions as serious mistakes to be avoided this time around. The UN, as the successor of the League, was endowed – as mentioned earlier – with an economic and social instrument, ECOSOC. But this was not enough. Other institutions with proper instruments to promote, and indeed force, economic cooperation, were needed. These were the International Monetary Fund (IMF) and the IBRD, which emerged from the UN monetary and financial conference at Bretton Woods.

The IMF, considered at the time by far the most important institution, was to have a substantial stabilisation fund to underpin a renewed gold standard system, to deal with current account deficits and to keep currencies stable

39 The UN charter avoids any differentiation among countries. Only in its preamble does it refer, in a typical prewar manner, to great and small states (UN, 1945).

and avoid harsh devaluations. The IBRD was meant to support, foremost, reconstruction, which had also functioned badly after WWI. One could argue that these tasks were to a large extent about succeeding where Versailles had failed, although instead of restoring a pre-1914 liberal order, they were meant to construct an international order of so-called embedded liberalism (Ruggie, 1983).

The second task of the IBRD, however, that of supporting development, was indeed a new topic that heralded a new era. One of the purposes of the IBRD was to encourage “the development of productive facilities and resources in less developed countries” (Mason & Asher, 1973, p. 759). In this way, the Bank recognised a new category of countries with special needs. So now, in addition to small states and states that had not yet attained a full measure of self-government (i.e., colonies), the category of less developed countries had irrupted into the new postwar order and would soon displace the first two. But not right away. The mandate of the IBRD did not call for developed countries to take responsibility for less developed ones, and, as we have seen, the UN Charter adopted a few months later did not refer to less developed countries and reiterated the Wilsonian message that only colonial powers had such responsibilities. Indeed, the IBRD was to be financed by official funds from all its members (including less developed ones) as well as by private sources and had the mandate to serve not only less developed countries (a category that it failed to define) but, again, all its members.

As Lord Keynes said in his introductory remarks to the discussions on the IBRD, apart from reconstruction, the Bank should help “to develop the resources of the whole world with special attention to the less developed countries” (UN, 1944, p. 85).

Bretton Woods did not mark the start of systematic development aid, but it did advance the agenda. Traditional accounts portray Bretton Woods as an Anglo-American affair, a battle between British economist Lord Keynes and Harry Dexter White of the US Treasury, focussed largely on the IMF, in which developing countries, though large in number, participated little and had less influence. In this debate, development aid – as Eugene R. Black, the legendary president of the IBRD during the 1950s put it – “was more or less an afterthought” (Steil, 2013; Black, 1960, p. 43). Eric Helleiner has recently challenged this view (Helleiner, 2014). Development, he points out, figured in the US blueprint from the very beginning and with a significant role. The same officials, led by White, who designed and implemented the good neighbour financial partnerships were behind the US proposals for

Bretton Woods. They wanted, in a way, to extend their progressive Latin American experience to the whole world. Moreover, Helleiner argues, developing countries, mostly from Latin America, had also learned from the good neighbour experience and now played a more proactive role in Bretton Woods than is usually acknowledged. Helleiner highlights particularly the role of Mexico, which chaired one of the three commissions of the conference and was represented by an articulate and combative delegation.

Although this is an important revision of Bretton Woods history, we should not take it too far. On the one hand, the New Dealers were unable to infuse as much development content into Bretton Woods as they wanted. They faced the same powerful opposition that they had faced in the US from “Wall Streeters” who now claimed that the IBRD would crowd out private banking in the lucrative markets of less developed countries.The US government, meanwhile, wanted to retain discretion to exercise its large voting power as by far the main shareholder of the new institutions. This led it to oppose a number of “constituencies in the making” – including that of developing countries – that demanded differential treatment.⁴⁰ In a discussion of access to IMF funds the US delegate Ned Brown deployed the US strategy to dilute such exceptional claims in the following way: “Where exceptions are necessary, where particular countries require additional support from the Fund, that can be given at the Fund’s discretion to any extent that the Fund deems such support necessary” (Schuler & Rosenberg, 2012, p. 385).

The UK took a similar position. Moreover, the new more conservative Truman administration that took over a few months after the Bretton Woods Conference further diluted the New Dealers’ vision in practice.

On the other hand, the new constituency of “less developed countries” was indeed still in the making and failed to present a coherent articulate position either individually or collectively. A closer look at the example of Mexico makes this clear. Mexico championed the development mandate of the IBRD, arguing that development, a structural long-term problem, should come before reconstruction both in the Bank’s mandate and title (Urquidi, 1996; Turrent Díaz, 2009). Mexico also joined others in drawing attention

40 Besides the emergent constituency of “developing countries” that suffered exceptionally from structural obstacles, championed among others by Mexico and India, other constituencies that demanded differential treatment included nations that suffered exceptionally from the war, championed by the USSR (Katasonov, 2015, p. 431) and commodity producers that suffered exceptionally from volatile prices, championed by Brazil and Australia (Turrent Díaz, 2009; Helleiner, 2015).

to the extraordinary volatility of raw material prices and calling for special measures to address it. At the same time, however, Mexico’s main objective in Bretton Woods was to advance the case for the monetisation of silver. It was for this cause – without any mention of the Bank or development – that Mexico mobilised, without success, all its scarce diplomatic resources.⁴¹ In Bretton Woods, Mexico defended the cause of development and of

“the standard of living of humanity as a whole” but did not identify itself coherently as a less developed country. It presented, thus, a proposal on the purposes of the IBRD that did not include this concept. In this sense, it represents a step backwards compared to Keynes’ original formula quoted above and to the one that finally prevailed. Indeed, the Mexican delegates struggled throughout the conference to articulate their country’s identity, referring more often to Mexico, in the still traditional fashion, as a small country facing great powers. Indeed, even in an international economic conference, Mexico seemed more concerned about defending its sovereignty than about obtaining economic gains from the new system.

Finally, Mexico made no attempt to join or form a constituency of less developed countries. Like the other Latin American countries, Mexico did not support India in its (failed) efforts to introduce a development clause in the purposes of the IMF. Indeed, even the Latin Americans did not form a coherent bloc at Bretton Woods. Even so, the conference served as a sort of ideological school that laid the groundwork for the Third World economic narrative that emerged years later.⁴² In sum, we can still conclude with Toye and Toye, that overall, “there was little recognition of the special economic needs of (developing) countries in the UN charter itself or in the intergovernmental discussions which gave rise to its specialized agencies”

(Toye & Toye, 2004, p. 26).

41 Mexico’s diplomatic archives contain a wealth of information on such efforts – wholly concentrated on the cause of silver – consisting of official letters and encounters of Mexican diplomats with their counterparts in Mexico City and abroad.

42 Developing countries were learning fast. Just a few months later at the Pan American Chapultepec Conference in Mexico City, convened to prepare a continental position at San Francisco, the Latin American countries presented a much more coherent development bloc vis-à-vis a US delegation now more heavily dominated by Wall Streeters (Figueroa Fischer, 2016).