basic transportation needs such as bridges and highways, and agribusiness ventures—
the bank funds governments and the private sector to carry out a wide array of
economic- development activities, including those in the social sector.
The International Monetary Fund (IMF) was designed to provide stability in
exchange rates. Originally, the fund established a system of fixed exchange rates and,
with the United States, guaranteed currency convertibility. From the 1940s to the 1970s,
the United States guaranteed the stability of this system by fixing the value of the dollar
against gold at $35 an ounce. In 1972, however, this system collapsed when the United
States announced that it would no longer guarantee a system of fixed exchange rates.
This decision was revised in 1976 when the International Monetary Fund formalized the
system of floating exchange rates, a policy more consistent with economic liberalism. At
that time, monetary cooperation became the responsibility of the Group of 7 (G7),
composed of the United States, Japan, Germany, Great Britain, France, Italy, and Can-
ada. The IMF was to provide short- term loans for member states confronting temporary
balance- of- payments difficulties. But, as it became increasingly apparent, “temporary”
difficulties were rarely temporary. States needed to undertake structural changes, and the
IMF expanded its functions to include policy advice on macroeconomic issues and eco-
nomic restructuring.
The third part of the liberal economic order was the General Agreement on
Tariffs and Trade (GATT). This treaty enshrined impor tant liberal princi ples:
■ support of trade liberalization, because trade is the engine for growth and eco-
nomic development
■ nondiscrimination in trade— the most- favored- nation (MFN) princi ple—
whereby states agree to give the same treatment to all other GATT members as
they give to their best (most- favored) trading partner
■ preferential access in developed markets to products from the South to stimu-
late economic development in the South
■ support for “national treatment” of foreign enterprises— that is, treating them
as domestic firmsGATT established these trade princi ples as well as procedures for moving toward free
trade. Multilateral negotiations among those countries sharing major interests in the
issue (major producers and consumers of a product, for example) were hammered out
and then expanded to all GATT participants. Individual states could claim exemptions
(ca lled safeguards) to accommodate any domestic or balance- of- payments difficulties
that might result from existing trade agreements. A weak dispute- resolution pro cess
was developed. Backed by U.S. hegemonic leadership, the Bretton Woods system led
to postwar recovery and economic prosperity.
The Historical Evolution of the International Economy 323