Rebuilding World Economy: Bretton Woods System, G-77 and NIEO

The Second World War broke out in 1939, even before the world recovered from the damages of the first war (1914-1918) and the great economic depression (1929-1939). Vast areas in Europe and Asia and several large cities were destroyed by aerial bombardment in World War II. Thousands of people across several countries were dead. The world economies plunged into darkness.

The post-war measures towards Rebuilding World Economy included the Bretton Woods System, the G-77 alliance, and the NIEO. The Bretton Woods System benefitted western, industrialised nations and Japan more than many other countries. However, the developing countries felt dominated by a few major powers.

They (developing nations) organised themselves into a group, G–77 (named after the original number of participating countries), to pursue a developmental agenda that would treat everyone on equal footing. The NIEO was born subsequently.

Rebuilding World Economy: Bretton Woods System

Since the First World War, a few countries had started controlling imports and exports to offset wartime blockades. Manipulation of currencies was done to manage foreign trade, which led to currency warfare and restrictive trade practices. This manipulation led to the deflation and devaluation of many currencies.

The Bretton Woods System is an international financial system created to ensure exchange-rate stability, prevent competitive devaluations and encourage economic growth.

The chief feature of this negotiated financial order was an obligation by each participating country to adopt a policy to fix their exchange rates by tying their currencies to the US dollar, which was linked to gold (1USD  = 35 oz.)

The system emerged from a conference in 1944 of all the World War II allied countries.  The agreement led to the formation of two institutions with specific objectives.

 a)The International Monetary Fund (IMF) monitors exchange rates and lends reserve currencies to nations with trade deficits.

1. b) IBRD or, The International Bank for Reconstruction and Development (known now as the World Bank) provides underdeveloped nations capital for developmental projects.

All the 44 signatory nations of the agreement contributed fees towards the initial funding of the two institutions.

Designed to rebuild the world economy, the Bretton Woods system failed in 1971 when the United States unilaterally decided to sever the linkage of dollar to gold.

Performance of the Bretton woods System

In the post-World War II period during the ’50s and ’60s, impressive development was seen in some of the countries. Germany, Japan, and a few other countries benefited the most.  The fully negotiated monetary system of Bretton Woods was in force. The overall level of economic development indicated that the performance of the Bretton Woods System had a positive impact on several nations.

The US dollar as the dominant currency was helping development and currency exchange balances in several participating countries. However, criticism of the system (Bretton Woods) was also building up. Some participating countries felt that the IMF and IBRD were becoming merely instruments of a strategy of the dominant country, the US, and a few other nations.

The growing discontent became a severe concern in 1971 when the US used the system to protect its economic interests against the rest of the world. Finally, the system collapsed in 1971, with the US unilaterally terminating the dollar’s convertibility to gold.

Most major world economies allowed their currencies to float against the dollar freely within a couple of years. A period of global economic uncertainty prevailed.

 The system did help the recovery and development of the world economy, but it benefitted a few nations only. As the dominant partner, the US used the Bretton arrangements to establish its hold and control of global trade. 

Rebuilding World Economy: G-77

The Group of 77 (G–77) is a coalition of 77 non-aligned countries founded in 1964 (June 15, 1964) through a joint declaration at the United Nations Conference on Trade and Development (UNCTAD). The coalition has subsequently increased and, as of 2019, stands at 134 countries.

The first significant charter of the group was adopted in 1967, which defined the basis of creating permanent institutional structures—the G–77 aims to rebuild the world economy through collective bargaining and lobbying. The group functions with the help of several chapters to address specific global issues.

 The various chapters of the group are in,

• Geneva (United Nations), Rome (FAO- for leading international effort to defeat hunger)
• Paris (UNESCO- for building a culture of peace and eradication of poverty through education of peace)
• Vienna (UNIDO- for sustainable industrial development)
• Nairobi (UNEP- aims to encourage partnership in caring for the environment and enable nations to improve the quality of life of people) and,
• Washington DC (IMF, World Bank to fund development).

 The G–77 is the most important forum for developing countries to tackle global economic issues by adapting common strategies through cooperation and collaboration. The NIEO subsequently followed on the pursuance of the members.

 Rebuilding world Economy: NIEO

The New International Economic Order (NIEO) represents proposals advocated by developing countries to end economic colonialism through a new interdependent economy.

The UN General Assembly adopted the declaration to establish a new economic order (NIEO) in May 1974.

A new order was necessary because the previous agreements and policies for improving the global economy were inadequate. Moreover, many developing countries did not even exist as independent states when these policies were framed.

The declaration called for changes in trade, industrialisation, agricultural production, and finance. 

Conclusion

• World War I and II and the great economic depression had destroyed the world economies and caused extreme hardship to people all over
• The Bretton Woods System emerged out of a meeting of all the allied countries of the Second World War in 1944. However, the system benefitted the industrialised nations more than the developing ones, creating considerable discontent
• The system finally collapsed in 1971 when the US lost confidence in the fixed exchange rate linked to the gold standard
•  The developing nations formed themselves into a group (G–77) in 1964 to demand a new economic order that would benefit the developing countries. Subsequently, the NIEO came into being a step in rebuilding the world economy