Sixty years after their creation, the Bretton Woods institutions face a crisis of legitimacy that impairs their credibility and effectiveness. At the root 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 their accounting for half of the world’s output in real terms,1 most of the world’s population and encompassing the most dynamic economies and the largest holders of international reserves 2. Over time, the effects of the unrepresentative nature of the governance of the BWI s have become aggravated by two trends: Firstly, 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. The second trend is the rapid increase in the economic size and importance of developing countries, particularly emerging market countries in the world economy. This trend, has made the governance structure of the institutions, which reflects the political accommodation reached at the end of WWII, increasingly obsolete.
The first part of the paper will review the existing governance structure of the institutions, the foundations on which it rests, the main formal proposal to reform quotas and a number of important shortcomings and major issues that were not addressed by their proposal.
The second part takes a different approach. Although in their self-interest, the major industrial countries could be expected to favor policies that contribute to the long term success of the institutions, the good performance of the world economy, and the stability of the international monetary and financial system, the policies they pursued in the institutions have often been determined by short term expediency. A brief review of the performance of the institutions in recent times, conducted in the light of their purposes and responsibilities, shows that, despite some conspicuous successes, their limited effectiveness in the pursuit of their objectives has not only not enhanced their legitimacy, but often contributed to their loss of credibility.