Multinational Corporations - The international monetary fund and world bank




As European recovery became increasingly apparent in the early 1950s and as the demand at home for consumer goods began to be satiated, U.S. corporations started to look once more at overseas markets. Problems still remained, such as a shortage of dollars (the so-called "dollar gap") and the lack of convertible foreign currencies needed to pay for essential goods from the United States and to remit foreign profits. But the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, or World Bank) began to make loans intended to spur foreign trade and economic development. Established in 1944 at Bretton Woods, New Hampshire, as part of a new international monetary system based on the dollar, these twin financial institutions had remained largely dormant and ineffective as instruments of a new economic order. The IMF's primary purpose was to stabilize exchange rates, mainly by setting par values and supporting them with short-term balance-of-payments loans. The World Bank was intended to serve as a reconstruction rather than a development bank.

In the years immediately following the end of World War II neither financial institution was able to achieve its objectives. Faced with a staggering imbalance of trade and a severe dollar shortage, the IMF husbanded its resources and acquiesced in the growing number of exchange restrictions that took place as nations sought to protect their exchange values from the pressures of the free market. As for the World Bank, the problems of reconstruction and the degree of international financial instability after the war were far greater than the architects of the Bretton Woods system had anticipated. Unable to meet Europe's reconstruction needs with its own limited resources, much less to promote economic development in the Third World, and seeking to win the confidence of the American investor in order to float its bonds on the American capital markets, the bank followed conservative lending policies. It made a few reconstruction loans, but after the inauguration of the Marshall Plan in 1948, it purposely subordinated its lending activities to the new aid program.

Beginning around 1950, however, the World Bank expanded its long-term lending program from a level of $350 million in 1950 to more than $750 million by 1958. By the fall of 1958 it had invested $3.8 billion in development projects in forty-seven countries, mostly in the Third World. The IMF went through a more protracted transition than the World Bank, largely due to the fundamental disequilibria that existed in the international economy and the fact that the dollar was the only fully convertible currency. Not until the Suez crisis of 1956 did the fund, which had stopped all lending with the inauguration of the Marshall Plan, resume lending. That year it approved a standby credit of $738 million for England to pay for oil imported from the Western Hemisphere. By 1958 the fund had extended short-term loans of $3 billion to thirty-five countries.

In other ways as well, the government sought to spur direct foreign investments. For example, the United States negotiated tax treaties with a number of countries to prevent American businesses overseas from being taxed twice. It made investment guarantees to American firms venturing in western Europe. It increased the lending power of the Export-Import Bank, which had been established in 1934 to make short-term loans to American exporters but which over the years had made a number of long-term loans for development purposes.

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