Bretton Woods revisited

THE Bretton Woods Hotel still stands in the shadow of New Hampshire's White Mountains, a graceful monument to the momentous events that occurred here nearly 50 years ago, when post-war multilateralism was spawned. Like an ageing monarch, this venerable New England spa strives to remain viable, just as the institutions that were conceived here strive to remain relevant in the post-Cold War world. Have the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade (Gatt) lived up to the ideals of Lord Keynes and his contemporaries, or is it time for a complete overhaul? Next year, the agreement's 50th anniversary, a new generation of international scholars will convene here to answer this and other relevant questions.

But even before the big event, there will be calls for change from among the big donor nations that comprise the Group of Seven. There is growing consensus that the fabric of multilateralism is tearing and must be rewoven. Dozens of papers have been commissioned in an attempt to supply the new design. But is there sufficient urgency and international purpose to supply the sort of creativity behind the stunning successes of the post-war period?

The architects of the new order were acutely aware of past disasters and determined to lay the foundations of a co-operative 'fresh start'. They were motivated at Bretton Woods by memories of the severe depression of 1921, hyperinflation in Germany, the debt crisis of 1931, and the massive unemployment, currency crises and trade wars of the 1930s. Today, things are nowhere near as bad, but there are similarities. Europe is again experiencing high unemployment, exchange rates are extremely unpredictable and trade tensions abound. Furthermore, there are disturbing examples of nations moving off the co-operative, multilateral track.

Reformers face the daunting task of re-examining a now-sprawling system of big multilateral bureaucracies and agreeing on their redesign. The G7 nations are the place to start because they, however inadequately, have stepped into the leadership vacuum after the collapse of Communism. It seems a good idea for the G7 to commission its own thorough review of these institutions with the goal of acting on any sound recommendations. At the very least, such a study would concentrate the debate and supply political muscle.

However big the issues, there is less divergence of opinion on the reforms needed than appears at first glance. For example, nations are widely divided on a proposal to merge the IMF and the World Bank, but not on the need to cut costs and eliminate overlapping functions.

Furthermore, there is agreement that neither institution is performing effectively enough. The IMF, for example, is now devoted to the macroeconomic problems of developing countries, having lost its ability to influence the policies of industrial countries and to provide them with financial assistance. The last time a developed nation used the IMF's resources was in 1976.

Meanwhile, the World Bank - the premier international development agency - remains rooted in old policies that concentrate on large-scale capital transfers to governments for big public projects, such as dams, which may or may not prove effective (recent evidence suggests many have not).

Additionally, although the bank has moved closer to the functions of the IMF Fund by moving to structural adjustment lending that stresses longer-term policy reform, liaison between the two is inadequate. As it grapples with structural reform, the bank has yet to find a way to play a sufficiently large private-sector role or to supply the technical assistance so desperately needed by reforming economies, most notably in Eastern Europe.

It needs to be re-invented to address these new challenges, which cannot be met by a bloated Washington-based bureaucracy. Functions that overlap with those of other development agencies should be hived off, operations should be decentralised with more staff in the field, and lending to the private sector should be greatly beefed up. These proposals draw broad agreement, but their implementation would amount to a 'cultural revolution' that only the major donors could engineer.

And then there is Gatt, from the start a mere shadow of the originally intended International Trade Organisation (ITO). It too has proved inadequate in some ways - most notably in the failure to link trade and investment policies - although not as moribund as many claim. The fate of the still-stalled Uruguay Round is a critical test. Some would like to see Gatt merged in some way with the IMF.

As for the G7 grouping, that too appears in need of creative restructuring if it is to fulfil the function, envisaged by many, of the world's new policy-steering committee. One can argue that it needs both membership enlargement and management consolidation, so that the key decisions are taken expeditiously by a G3 comprised of the US, the EC (represented by a single chair), and Japan. In other words, plenty of food for thought for the new reformers meeting at Bretton Woods.