2 - The Bretton Woods Institutions: Governance without Legitimacy?

Summary

Abstract:

Sixty years after their creation, the Bretton Woods institutions face a crisis of legitimacy that impairs their credibility and limits their effectiveness. At the roots of this crisis lies the unrepresentative nature of their structure of governance, which places control of the institutions in the hands of a small group of industrial countries. These countries consider the developing countries and economies in transition as minor partners, despite the fact that they now account for half of the world's output in real terms, most of the world's population, encompassing the most dynamic economies and the largest holders of international reserves. Over time, the effects of the unrepresentative nature of the governance of the BWIs have become aggravated by two trends: First, a growing division among member countries, on the one hand, industrial country creditors who do not borrow from the institutions but largely determine their policies and make the rules and on the other, developing country debtors or potential debtors, subject to policies and rules made by others. Second, the rapid increase in the economic size and importance of developing countries, particularly, emerging market countries in the world economy. This has made the governance structure of the institutions, which reflects the political accommodation reached at the end of World War II increasingly obsolete.

The first part of the paper reviews the existing governance structure of the institutions, the foundations on which it rests, the main formal proposal to reform quotas, its shortcomings and major issues that were not addressed by it.