Make suggestions to improve working of Bretton Woods Institutions.

Make suggestions to improve working of Bretton Woods Institutions. 

Ans. Following suggestions can be made for improving the working of Bretton Woods Institutions. 

1. Facilitating Restructuring 

Bretton Woods institutions should lend to a sovereign which is in default to its private creditors only in two conditions: 

(a) If country agrees to follow a credible mediumterm adjustment programme. 

(b) The country must develop a credible and monitorable framework for cooperatively achieving a viable debt restructuring. 

2. Strengthening the Financial Instruments 

Bretton Woods Institutions must ensure that the policy of the borrowing country is strong enough to ensure confidence amongst investors. When lending is made under an ineffective policy, it will worsen the situation. The BW institutions can not fulfil the entire gap between needs of a country and availability of its. Therefore, it should be allowed to play a successful part in catalyzing other resources to flow so that it can fill maximum gap. It is advisable to provide a large front tranche that releases liquidity stress from the market. The BW institutions also need to support other countries in pursuing reasonable restructuring proposals when it is demand of the situation. It can make use of official financial resources to meet the targeted needs. 

3. Changing the Surveillance 

The present day system of surveillance is suffering from many loopholes. A meaningful check is not being kept on ex-ante policies but help is given only when situations become too acute. These loopholes make it unsuitable for a small open emerging economy. If a continuous surveillance programme is implemented, it will reduce risk over time and the institutions will be in a better position to handle risks of deeper financial crisis.

4. Market-Friendly Reforms 

These institutions lend to any country, they deny them any form of protection which is available to those who have not borrowed from it. In such a situation, the country which was already in bad situation falls into still worse situation. Moreover, there is a total lack of financial accountability for BW institutions. One loan does some damages to these institutions and another loan is given to rectify it. The borrowing country keeps falling into a vicious circle. 

(a) We need to make BW institutions financially accountable. 

(b) They must distinguish between projects and programmes. 

(c) They must introduce incentives to improve their market efficiency. 

(d) If negligence on their part causes damage to a country, it must compensate him. 

5. Emulating the Private Sector 

We should let BW institutions operate according to principles of corporate governance.