In a complex world economy, adjustment is
inevitable. Governments, firms and individuals are constantly adapting to changing
conditions, in an attempt to offset disadvantages and improve their position in relation
to others. Their strategies are shaped not only by the outcome of competition and
negotiation within the international arena itself, but also by the balance of power within
their own countries. The changing policy environment in each nation affects the terms on
which citizens participate in international markets.
The normal process of economic and political competition
is marked by crises which threaten to disrupt national economies and to create severe
balance-of-payments problems. In designing policies to deal with these situations, policy
makers are influenced not only by immediate pressures of a very practical kind, but also
by underlying assumptions concerning how economies function and why crises occur.
One school of thought, often referred to as "liberal",
would attribute these crises above all to interference with the free play of market
forces. In this view, if governments exercise strict monetary and fiscal discipline and
remove all barriers to the operation of a self-regulating market, equilibrium can
automatically be restored in world finance and trade.
Others doubt that a fully self-regulating market exists.
They stress the importance of government intervention to develop and protect local
economies, as well as to regulate cycles of recession and growth. In the world arena, they
hold that international institutions are required to regulate global finance and trade and
to create the conditions for redistribution from countries with long-term
balance-of-payments surpluses to those with serious problems of deficit.
In practice, the institutions and policies which developed
following the Second World War to deal with serious balance-of-payments problems grew out
of a compromise between these two positions. The fact that the World Bank and the
International Monetary Fund (IMF) were established at all (at the Bretton Woods Conference
in 1944) reflects recognition by the victorious powers of the importance of institutional
co-ordination of the global economy. But international financial organizations, now
celebrating their fiftieth anniversary, were never given the authority to regulate surplus
as well as deficit countries. Although the subject was broached at Bretton Woods, there
was no agreement to redistribute persistent surpluses through adjusting commodity prices
which had fallen too low, or to tax the reserves of countries consistently earning more
foreign exchange than they spent. International institutions could extend loans to
countries experiencing balance-of-payments difficulties, but the ultimate responsibility
for finding a way out of crisis rested in the hands of countries themselves.
Over the past half century, developing nations confronting
internal economic crisis and balance-of-payments problems have sought solutions through
reaching individual agreements with the governments of industrial powers, bankers and
others within the international financial community. This has been a pragmatic exercise:
Third World governments have used strategic or other arguments as bargaining tools; and
industrial countries, bankers and international financial institutions providing resources
have insisted on the implementation of certain kinds of policy reform in the deficit