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Article Review on : The operation of the Bretton Woods institutions in the modern

globalized environment: problems and challenges.

Author : Maria Eleni Voutsaa & George Borovasb

The Bretton Woods institutions were founded in 1944. The World Bank would function as a
development tool and the IMF would operate as a mechanism to prevent a new economic
recession similar to that of the 1930s. As their main objective was to maintain global
economic stability, they would work directed towards a dual role. The most important one
was the diagnosis of creeping crises and their prevention, while the other was the direct and
effective intervention in crises, when these could not be prevented.
Over the years, the objectives of the institutions changed and their operation does not
correspond to the formation of modern reality. In recent years, a debate has commenced
regarding the effectiveness of the institutions and their role. The disharmony between the
stated objectives and the practical implementation of programs has led to contradictions and
inconsistent policies. This paper examines the problems and challenges faced by the Bretton
Woods institutions in the contemporary globalized world.

Globalization affects the operation of the Bretton Woods Institutions. The results of the
options and policies they promote are not confined to the countries these are implemented. As
economies are
now largely interconnected, the policies applied to a Member may have catalytic effects on
global economic developments. A typical example is the crisis in Southeast Asia which
triggered social riots in the region and it is estimated to have resulted in a global yield
reduced by 2 billion $ (United Nations Development Programme 1994).

As per the article the organization structure of globalization is explained as the current form
of globalization differs substantially from the previous ones since it displays dense and
multiple
weaves of interconnectivity characterized by an unprecedented institutionalization. This
dense globalization involves a powerful systemic framework that shapes the parameters and
limits of the state power. Liberalization promoted the idea that international institutions
would be able to embody roles and responsibilities that state was not able to implement.
Along with the increase of interdependence the distribution of power and authority has
become more diverse while at same time the global governance mechanisims have shortened.
The power of distribution system is not democratic in brettan woods institutions, so their
legitimacy remains meagre as the state representatives do not have direct democratic
legitimacy from the majority within the states.

The bretton wood institutions have played a catalyctic role in spreading the principles of
neoliberalism through the policies they promote. The condionalities they set in their financial
programs, they actually forced countries to adopt similar policies leaving room for the private
sector to intrude in state policies.The programme implemented by bretton woods institutions
presented specific core characteristics which includes –
1. Persistence in a market model by imposing certain conditionalities
2. Conditionalities for the means and not for the objectives of the program
3. The nirvana fallacy
4. The infallibility syndrome

The Bretton Woods agreement was a major achievement of the institutional innovation and
organization which constituted a system governing the global economy. The ‘compromise of
embedded liberalism’ (Ruggie 1982) advanced the Bretton Woods towards globalization, as it
contributed to economic development, security and stability. This compromise allowed for
the exercise of globalized policies which, though, did not leave room for countries to exert an
autonomous policy tailored to their internal needs.