The Bretton Woods Conference of 1944, also known as the United Nations Monetary and Financial Conference and chaired by Secretary of Treasury Henry Morgenthau, ushered in a new era of international monetary cooperation. Designed to abolish the economic ills believed to be responsible for the Great Depression and World War II, it brought together delegates from most of the Allied nations. From the conference came recommendations to establish a new international monetary system and to make international rules for an exchange-rate system, balance-of-payment adjustments, and supplies of reserve assets. The conference's proposals led forty-five nations to establish the International Monetary Fund (IMF) in 1945 and the International Bank for Reconstruction and Development, or World Bank, in 1946. (Membership in the IMF is a prerequisite to membership in the World Bank. Traditionally, the managing director of the IMF is a European, whereas the president of the World Bank is an American.)
The IMF, the brainchild of Harry Dexter White, had as its chief purpose restoring exchange-rate stability in the countries that had been in the war and then to promote international monetary cooperation and the expansion of world trade. It was to provide short- to medium-term monetary assistance to member states experiencing balance-of-payments deficits and to prescribe methods by which recipient nations would be able to eliminate their deficit positions. The IMF has played a significant role in facilitating the growth of the world economy, but it has not been without its critics, who have argued that it imposes inflexible and onerous conditions on individual nations who are having difficulties in meeting their payments. They have charged that the IMF shows little consideration for differences in types of economies; that some of the stabilization programs offer no hope of permanent adjustment; and that the fund is often more interested in short-term, painful, quick-fix programs that do not address the fundamental problems. The latter complaint is bolstered by an examination of the fund's policies during the Yugoslavia crisis in the later 1980s and its failures in meeting the needs of the Haitian crisis of the 1990s. Additionally, critics have complained that the IMF is biased against socialism and favors the free-market approach. While this charge may be debated, it does appear that strategic and political concerns have led the United States to lobby the IMF for increased leniency in the rescheduling of debts for Latin American countries, especially Mexico.
The World Bank's purpose, after initially emphasizing the reconstruction of Europe after World War II, has been both to lend funds to nations at commercial rates and to provide technical assistance to facilitate economic development in its poorer member countries. Essentially, the World Bank was designed to complement the IMF's short-term focus with longer-term developmental goals. It would provide loans aimed at encouraging the development of new, productive resources in countries facing a deficit—especially those resources for which there were reliable foreign markets. The bank's charter stated that it was to promote foreign investment for development through loan guarantees; it was also to supplement private investment in projects it viewed appropriate when other sources of financing were lacking.
The World Bank obtained funds from four sources: capital subscriptions of its member countries, capital market borrowing, loan repayments, and retained earnings. In terms of its financial practices, the bank has had an excellent performance history in that it has earned a profit every year since 1948. In fiscal year 1991, it earned a net income of nearly $1.2 billion on loans in forty-two currencies of some $90 billion.
Robert S. McNamara, president of the World Bank from 1968 to 1981, shifted its goals from concentrating on infrastructure to the alleviation of poverty—the meeting of basic human needs. His successor, A. W. Clausen, a former president of the Bank of America, changed the World Bank's focus in the early 1980s toward reducing the role of state in the economy and the possibilities of privatizing state-owned enterprises. By the end of the 1980s, the bank had shifted again and now began emphasizing the role of women in development and the idea of sustainable development and the environment.
As with the IMF, the World Bank has generated its share of criticism. There were complaints that the two were not coordinating their activities and in some instances actually weakened the fiscal basis of their debtor states. Also, critics have pointed out the bank's efforts to reduce the role of state in the economy—in the belief that it would produce greater efficiency and better economic performance—often did not address the root problems. But it was the bank's difficulties in dealing with debt crises, beginning in the early 1980s, that have prompted the most complaints.