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The International Economic System--Under Stress
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13268 |
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CURRENT ISSUES
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| Issue
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10 / 1987 |
3,134 Words |
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Ernest H. Preeg
Ernest H. Preeg is currently chief economist and deputy
assistant administrator of the U.S. Agency for International
Development. The views expressed are personal and do not
necessarily reflect those of the U.S. government. |
The international economic system - often referred to as the "Bretton Woods System," in memory of the 1944 conference in Bretton Woods, New Hampshire, that created its initial institutional structure - has been buffeted by a number of shocks and strains over the past decade. Serious questions are raised about its ability to cope with rapidly changing circumstances in the world economy.
The unsustainable U.S. trade deficit, the Latin American debt crisis, and the pervasive poverty throughout much of sub-Saharan Africa are among the pressing economic problems that require persistent, concerted action by governments. But is the institutional basis for bringing governments together - the international economic system - adequate to the task? Do we need a new or improved framework for dealing with current and future economic challenges? These are the kinds of recurring questions that again come to the fore as we approach the annual meetings of the World Bank and the International Monetary Bank (IMF) in Washington beginning September 29.
The answers to these questions require differentiation between the challenges facing each of the principal institutions in the existing international system. The system is not monolithic in concept or content. The answers also need to take a longer look at where the international economy is headed and not become totally absorbed with current problems. Finally, the answers need to relate to practical alternatives in what is a very imperfect world, with many overriding constraints.
A three-pillar system
There are three principal elements, or "pillars," in the existing international economic system: the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT), dealing with international finance, economic development, and trade, respectively. There are numerous interrelationships among the three, but the institutions are largely independent in terms of objectives and operations.
The IMF has the most clearly defined role. It deals with relatively short-term balance-of-payments problems by providing credit and technical support to member countries during the transition back to financial stability and balance. Nevertheless, there has been considerable evolution of the IMF role in recent years. The shift from a basically fixed to a floating exchange rate system in 1971 changed, in a number of respects, the composition of an "IMF stabilization program." The oil
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