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INTERDEPENDENCE AND INEQUALITY IN THE WORLD
POLITICAL ECONOMY SYSTEM
Introduction
The emergence of a new international spirit after World War II seemed to give hope
for the growth of a global economic system for the benefit of the world. International
institutions, such as the International Monetary Found (IMF), International Bank for
Reconstruction Develiopment (IBRD) GATT (now World Trade Organization-WTO) were
formed with the aim of: (1) to help rebuild countries destroyed in World War II; (2) to
prevent the recurrence of pre-war international economic ills; and (3) to build and develop the
world economy (A. Hasnan Habib: 1997, 373).
Peter Drucker suggests the main characteristics of the world economy that has
undergone transformational changes, namely: 1) primary commodities are separated from the
industrial economy; 2) in the industrial economy itself, production begins to be separated
from labor; and 3) capital flows have become the main motor and driving force of the world
economy, and no longer trade and services (Peter Drucker: 1992, 21).
The contemporary world shows that the affairs of one country are also the affairs of
other countries that are already globally interdependent. Not only in certain fields but all
aspects including economic, business and monetary relations have been integrated in a
system of interdependence. This causal relationship is sometimes difficult for a country to
solve problems within its own country when the country is experiencing economic problems,
especially countries with relatively developing economic capabilities are encouraged to act
globally.
Global trends and developments are also interpreted as interactions that mutually
affect one country with another, no country can avoid it except perhaps a country that is
determined to isolate itself, or "meditate" somewhere far from the world political
constellation, even if such a place can be found. Indeed, globalism is based on
interdependence between societies and other societies and between countries and other
countries (Hasnan Habibi: 1997, 373). The interdependence of nation-states packaged in the
frame of a global political economic system has forced countries with relatively weak
capabilities to submit to the rhythm and rules of this giant system.
In practice, there is no doubt that free trade always favors developed countries. In
order to expand the market for the industrial goods they produce, developed countries are
constantly trying to find new targets anywhere in the world. This is the movement of
globalization that no longer wants to be hampered by national boundaries or what is known
as a borderless world.
World economic governance in the future is predicted to be much more open after 20
countries agreed to form the G-20 in Pittsburg, United States (US) at the end of September
2009. On the one hand, many parties are very optimistic that the birth of the G-20 will bring a
revival of trade and investment to restore growth global economy. On the other hand, its birth
is also a recognition of the failure of world economic governance under the G-8 (which will
continue to exist even though its focus in the future is non-economic). The G-20 will replace
the economic role of the G-8, contributing 90 percent of the world's gross domestic product,
around 60 trillion US dollars. It consists of the US, EU27, Japan, China, Germany, France,
UK, Italy, Brazil, Canada, India, Russia, Mexico, Australia, Korea, Turkey, United States,
Argentina, Saudi Arabia, and South Africa. The G-20 is expected to change the world elite,
which was previously dominated by rich countries into an elite group with a combination of
rich countries and developing countries with brighter prospects.
Various groups that welcomed the birth of the G-20 were based on the argument that
developing countries can now directly voice their interests in this kind of informal forum.
This is certainly much different compared to what has happened so far where developing
countries are merely spectators and objects of the rich countries in the G-8. The G-20 leaders'
communiqué (a new informal organization replacing the G-8) also hopes that the G-20 will
fight protectionism. This symptom is strengthening in the EU as market access to the US and
other countries becomes increasingly restricted.
In terms of solving the financial crisis, the path taken remains the same, namely
expanding investment and increasing free trade activities. Similarly, the way to solve the
environmental crisis relies on three things, investment in new technologies, carbon trading
and increasing foreign debt for developing countries in order to mitigate and adapt to climate
change crisis resolution schemes. The conservative and outdated ways of neoliberalism
continue to be maintained which will certainly make things worse.
That is why the capabilities of developing countries seem to continue to be a concern
when faced with fully competitive, which is the basic philosophy of classical economics. This
is because one of the important consequences of the world economy is the development of an
organized division of labor system in which developed countries concentrate on producing
capital- and technology-intensive goods and heavy industry, while developing countries
produce raw materials, agricultural products and light industry. As a result, there is a gap in
national income between developed and developing countries (Bob Sugeng Hadiwinata:
2002, 31).
The above description encourages a number of questions related to how the pattern
and structure of the world system works in the sense that the prevailing mechanism benefits
the countries in the system, how it affects countries with relatively weak economic
fundamentals, how the role of international institutions in maintaining system stability. These
questions are the focus that will be explained in this simple paper.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
World SystemTheory
Immanuel Wallerstein was an important intellectual figure who formulated World
System Theory in the late 1970s and put himself in the same camp as the originators of
Dependency Theory, such as Andre Gunder Frank. Wallerstein begins by explaining that in
the beginning, the world was ruled by small kingdoms and other forms of government, and
the world system did not exist at that time. These small kingdoms were then incorporated into
larger systems after a process, either peacefully or through war. These amalgamations were
quite large compared to the earlier empires. Although it didn't cover the whole world, it
already had power politically controlling its territory (Immanuel Wallerstein: 1984, 1).
In line with this, Blomstorms and Hettne state that the development of
communication and transportation technology is the cause of the emergence of a world trade
system which then brings countries into a unified system. If previous empires ruled their
regions through political power, then in the world economic system that exists now is global
capitalism as a force that moves countries around the world (Magnus Blomstroms & Bjorn
Hettne: 1984, 181).
Hegemony relates to achieving gains in three areas of economic activity: agro-industry,
trade and finance. The acquisition of control in these three factors is simultaneous and
can be achieved in the short term.
Hegemony is also related to ideology and politics. They enthusiastically push for the
implementation of global liberalization, where the flow of production factors (goods,
capital, and labor) is guaranteed freedom through the world economic system.
Therefore, the principles of mercantilist principles and bureaucratic politics must be
abolished, while civil liberties are upheld. Since these principles are to be applied
generally, they do not hesitate at times to intervene in other countries that are deemed
detrimental to their interests.
The development of global military power is also considered an important factor in
achieving hegemony. This is because military power can be used as an instrument in
realizing economic interests in the global economic system.
Wallerstein then created a hierarchy of countries in the world economic system. The
countries themselves are grouped into three tiers of center, semi-periphery, and periphery
(Wallerstein: 1984, 50-51). The three groups in principle have differences in economic and
political power. The center countries are automatically in the most powerful position because
this group can manipulate the world system to a certain extent, so that it can take more
advantage. Meanwhile, the semi-periphery countries take advantage of the periphery
countries that are the most exploited or disadvantaged.
In the world economic system there is no constant power. Therefore, each party can
experience ups and downs. For example, from the strongest position to the weakest position,
or vice versa. The procession of upgrading a peripheral country can be done with one of three
strategies (Arief Budiman: 1995, 110):
Class advancement occurs by seizing opportunities. Due to the dynamics of the world
economic system, at one time the prices of primary commodities were very cheap; and
industrial goods were expensive. As a result, peripheral countries could no longer
import industrial goods. Under these circumstances, countries that have been pushed to
the edge take bold action to begin industrialization import substitution on its own. In
terms of economic criteria, there is a possibility of the country being upgraded from a
peripheral country to a semi-peripheral country.
Class ascension happens by invitation. This happened because giant companies in the
central countries expanded to other countries. Thus multinational companies were born.
These multinational companies need business partners in developing countries. As a
result of this development, industries in peripheral countries are invited by
multinational companies to cooperate.
Upgrading occurs because the country is pursuing policies to establish itself. If
successful, these countries can be upgraded to semi-peripheral countries.
However, Wallerstein does not deny the inherent weaknesses of marginalized states.
They lack the power to control the flow of commodities, capital and labor, both within their
own countries and within the world capitalist system. Worse still, the peripheral countries are
only capable of being facilitators of the flow of production resources produced by the
industrialized countries.
This reality is actually no different from Samir Amin's description as shown in Figure
2 which explains the development model in central countries and peripheral countries
(Blomstorms & Hettne: 1984, 143). Activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries
(including Southeast Asian countries) only have the ability to become agents of global
capitalism. The development of industrialization in these countries is more pseudo (Yosihara
Kunio: 1990).
There are several things to learn from world systems theory. First, it provides further
understanding of the inherent inequality in the structure of the world economy. Second, this
theory also explains the logic of economic development that cannot be separated from
innovation and capital accumulation. Third, it can understand the complexity of the world
economic system that is vulnerable to various contradictions and conflicts of interest. Fourth,
this theory also provides an understanding that the world economy is more oriented towards
growth than equity Blomstorms & Hettne, 1984, 51-52).
Free Trade Regime
Likewise, with the liberalization of world trade, which has become the main jargon of
the world system, international economic regimes such as the IMF, IBRD, and WTO are
decisive for the position of countries in the world system. The role of the regime International
development cannot be separated from the industrialized developed countries (especially
those in the EC, OECD, and G-8) in relation to development in developing countries, as these
countries are in the most powerful position.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. Scott Burchill further explains that the US emerged from World War II with greater
power and in an unprecedented position to reconstruct the world economic system, so that
Americans could trade, work, and profit everywhere. This meant creating a world economy
conducive to the free movement of goods, capital and technology (Scott Burcill and Andrew
Linklater: 2009, 71-72).
The formation of the G-20 tends to be seen as a space between capitalist powers and
developing countries. Capitalist countries will only 'help' the ruling elite class in developing
countries to become compradors. So that capitalist countries will gain wealth by exploiting
developing countries. Therefore, the world economic crisis caused by the failure of the capital
system in the US, which led to the bankruptcy of the country's economy, can be understood
that when there are speculation opportunities, the consequences must be borne by developing
countries such as United States (http://awigra.Blogspot.com). In other words, the involvement
of developing countries in forums such as the G-20 will only facilitate the interests of rich
countries to further exploit the resources of developing countries. The G-20 is a space for the
co-optation of developing country elites.
The Monetary Regime: The Hegemony of Developed Countries
In its development, the hegemony of developed countries over developing countries
can be seen in international monetary exchange activities, where most payments made by
developing countries must use the world's major currencies-the US Dollar, German Mark and
Japanese Yen-rather than their own currencies. As a result, in formulating their monetary
policies, developing countries are required to take fluctuations in these major world
currencies as a given (Hadiwinata: 2002, 177-178).
The strengthening and weakening of the currency exchange rates of countries around
the world is highly dependent on the exchange rate of the US dollar. This is also where the
dependency in the global economic system that eventually creates a "permanent" pattern of
inequality is seen. The integration of the world economic system, which then results in
permanent inequality, is based on the strength of the dollar that is never matched by the
currencies of other countries, on the contrary, these countries do not have the power to
control their own currency exchange rates when the dollar experiences ups and downs.
The possibility of the influence of global monetary mechanisms on the banking
system can be justified, because basically money is traded like goods or services, even the
money market is more difficult to predict than the commodity market. In other words, the
quantity of demand and supply can be known directly. In contrast, the money market does not
allow for the control of information required by buyers and sellers. Money markets are
characterized by information uncertainty, as the quality indicators of financial products
cannot be precisely predicted. As a result, prices are often misleading. Therefore, a borrower
may have to pay a high interest rate at one time, and at the same time a high interest rate at
another time lending would not be willing to provide assistance due to the high risk that the
borrower would have to bear.
The 44 countries meeting in July 1944 at Bretton Woods reflected the desire to
establish an international monetary regime. In order to avoid a monetary collapse like that of
the 1930s, the delegates came up with an agreement on a strict or controlled monetary system
(fixed exchange rate), which would be run entirely by the IMF (Harold James: 1996, 588).
On how the international monetary regime would be managed and the rules that
would be imposed on it, both the UK and the US, the two industrialized countries had to go
through a heated debate. The debate took place at Bretton Woods with their respective
representatives; John Meynard Keynes from the UK and Harry Dexter White from the US.
The idea put forward by Keynes was to encourage; (1) the establishment of an
international "clearing house" based on the centralization of currency transactions through
the central bank; (2) the establishment of a new reserve asset called "bancor" (the forerunner
of SDR's which was later imposed by the IMF); (3) adjustment of exchange rate imbalances
so that creditor countries bear the burden of debtor countries; (4) credit is given to borrowing
countries automatically. This opinion was later challenged by White. He emphasized on; (1)
Restoration of competitive markets with limited interference by central markets to influence
exchange rates; (2) Gold standard reinforced by the stabilization fund (IMF); (3) borrowers
were granted under strict conditions (Robert A. Isaak: 1995, 57).
Ultimately, this conflict was won by the US, illustrating the strong dominance of the
US after WWII, as it was the country with the political, economic and military power. A
condition that then prompted the US to call for countries to support the implementation of the
international monetary system under the coordination of the IMF for the realization of a
liberal world economic order.
The efforts of the US in promoting the implementation of the international monetary
order are evident in its generous contributions to the regime. Its ambition was evident in its
US$3 million financial assistance to the monetary institution (Joan Edelman Spero: 1985,
46). In short, the US succeeded in creating a blueprint for non-inflationary economic growth
intended to eradicate unemployment and restore a competitive exchange rate in the
international monetary regime. The fatal flaw, which eventually paralyzed the system, was
that everything was based on the assumption that dollar dominance was forever freely
convertible into gold.
Thus, in the early 1960s and into the 1970s the foundations of the Bretton Woods
system collapsed. Most opinions suggest that the deficit position of the US balance of
payments, the development of competition in the world economy, foreign policy. The US
financing of the Vietnam war, the rising oil prices set by OPEC (Organization of Petrolium
Exporting Countries) countries, and high inflation were the components that caused the
destruction of the monetary system established at the Bretton Woods meeting.
In fact, with a number of policy changes, the IMF dominated the international
monetary system from 1947 to 1970. One of the most important changes was the
establishment of the two-ring gold system in 1968 and the creation of SDR's (Special
Drawing Rights) in 1970. Both were intended to address monetary imbalances due to
declining international financial reserves amid surging international trade. The establishment
of these two mechanisms should be criticized, because their formation was prioritized to
protect the US gold supply. Meanwhile, the country's ability to do so began to suffer when
floods in Europe multiplied the level of demand for its gold. However, the dollar's position in
the international monetary regime remains unchallenged.
With all the limitations of the IMF as an international monetary regime, the strict
currency system was seen as a failure in managing the international monetary system. In
1971 the global economy underwent a series of structural changes as the economies of
European countries and Japan had fully recovered from war damage. This crisis was then
discussed by IMF members which resulted in the Smitsonian agreement. The strict money
exchange rate system was abolished and replaced with a floating exchange rate system. In
place of fixed convertibility, a new system, on off "free floating" currency relation, was
established. Here the value of a country's currency was basically left to supply and demand
(Stephan D. Krasner: 364).
That is why, most opinions say that a monetary system with floating exchange rates
implies that all countries pursue their domestic goals according to their own will and the
exchange rates of their currencies in the world economy are determined by the demand and
supply of various currencies in the world money market.
Clearly, the dollar no longer has a fixed value against gold, the market mechanism is
the determinant of any country's currency strength. As such, the dollar can at one time
decrease in value, and at another time increase in value sharply. The problem is that a
country's currency being overvalued or undervalued has both positive and negative
repercussions for the country. Therefore, to prevent chaos in their domestic economies,
governments of various countries often try to manage their currency rates by intervening in
the global money market.
The IMF and its Consequences
Ultimately, the basic mechanism of capitalism in the world economy stems from the
fact that there is no binding political structure, allowing producers to accumulate capital as a
result of competitive values where economic actors act solely on normative principles. This
means that producers and entrepreneurs tend to make decisions about their production and
investment on a scale that optimizes individual profits, as Wallerstein explains the future of
the world economy (Wallerstein: 1984, 274).
The above perception basically departs from the issue concerning the authority of the
IMF as a monetary regime in relation to changes in the convertibility of the dollar, which
subsequently gave birth to a floating exchange rate system. This of course must be adhered to
by all countries, including United States. Meanwhile, there is a question that must be asked.
When a floating exchange rate system is implemented in a monetary regime, why do all
currencies not have the same value? Even when the dollar in circulation in other countries has
exceeded the US gold reserves, the dollar remains and has never even been equal to other
currencies, let alone below.
Thus, the monetary regime under the coordination of the IMF in relation to the world
economic surveillance system raises problems between the world trade organization (WTO)
and the IMF itself. According to James, there are four main issues (Harold James: 1996).
First, global liquidity management. The dramatic growth of the private market sector
was a major post-war development. As a result, the international monetary institutions were
unable to provide liquidity. Arrangements for cooperation between countries in the monetary
field were a major concern of the IMF with the assistance of the BIS (Bank of International
Settlement). The emergence of the phenomenon of lending across national borders, the
establishment of different regulations, the weakening of mainstay lenders (Lender of last
resort), financial crises that require international resolution are a series of major problems in
the world monetary system.
Second, adjustment policies. The development of industry and the increase in
countries' income from the private sector resulted in the IMF and IBRD closing trade-related
issues to poor countries. Since the two institutions have different functions, especially the
IMF which only deals with monetary issues and not development, the Bretton Woods
"Siamese twins" should not have to discriminate against some of their member countries if
their existence is to be managed more effectively.
third, trust. A stable policy framework in dealing with the international financial
system is needed by all member countries, which are mostly driven by the G-8 countries.
That is, it is a better imperative to resolve monetary issues through a universal institution
within the framework of the IMF.
Fourth, trade policy. One of the IMF's objectives is to promote the expansion and
growth of international trade. The IMF's oversight of exchange rate policy and trade
liberalization has "overlapped" with the WTO. Because of the basic relationship between
these institutions when they were established, the founders of the WTO found cooperation
with the IMF and the World Bank in order to achieve a strong relationship in global
economic policy. But the policy was not so successful in the process. It is evident that the
current monetary crisis in United States cannot be resolved, and it is even feared that it could
have a global impact.
Therefore, Krugman's view of the IMF's "failure" in managing the international
monetary system is worth examining. Within the IMF framework, there are two types of
currencies. First, hard currency. This kind of currency is seen as often causing crises because
the IMF encourages the country to devalue its currency in order to maintain the exchange
rate. Second, soft currencies. Against this type, the IMF is seen as having too much interest in
stabilizing the currency (Paul Krugman: 1998, 35-36).
Both actions were never convincing to investors. Furthermore, what happens is
capital flight. Automatically resulting in a decrease in the quantity of financial turnover. And
this is what United States did to instill confidence. Such was the case with the soft currency,
causing a number of banks to collapse.
The most important of Krugman's criticisms is that the IMF, in resolving crises in a
country, always cuts budgets and raises taxes, which only makes things worse.
Finally, he came up with a solution that he called plan B (the criticism above is plan
A). Since the most crucial issue of a monetary crisis faced by a country is capital flight by
investors, there is no other way but to implement an exchange control system. This view is
understandable, because, by exercising control, investors.
Conclusion
Global trends and developments can be interpreted as interactions that affect one
country to another, no country can avoid it. In fact, globalism is based on interdependence
between societies and other societies and between countries and other countries. The
interdependence of nation-states packaged in the frame of the global economic system has
forced countries with relatively weak capabilities to submit to the rhythm and rules of the
giant system.
The reality is that development activities in peripheral countries only export and
consume mass goods and luxury goods. Whereas in the central country, in addition to
consumption, the industry is independent because it can produce its own capital goods, and
profits remain in the central country. A further consequence is that developing countries only
have the ability to become agents of global capitalism. The development of industrialization
in these countries is more pseudo.
The creation of a free trade regime by the post-war US was a conscious act of state
policy. The US emerged from World War II with greater power and in an unprecedented
position to reconstruct the world economic system, so that Americans could trade, work and
profit everywhere. This meant creating a world economy conducive to the free movement of
goods, capital and technology, which led to the creation of the G-20 group.
In its development, the hegemony of developed countries over developing countries is
seen in international monetary exchange activities, where most payments made by developing
countries must use the world's major currencies-the US Dollar, German Mark and Japanese
Yen-rather than their own currencies. As a result, in formulating their monetary policies,
developing countries are required to take fluctuations in these major world currencies as a
given.
Ultimately, the basic mechanism of the world economy stems from the fact that there
is no binding political structure, allowing producers to accumulate capital as a result of
competitive values where economic actors act solely on normative principles. This means
that producers and Entrepreneurs tend to make their production and investment decisions on a
scale that optimizes individual profits.
