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20 Jul 2014 08:53
Brics leaders at their summit in Fortaleza, Brazil. (AFP)
By creating their own multilateral financial institutions, the Brics emerging-market powers are shaking up global
economic governance but remain far from dismantling the post-war system
dominated by the West.
For the past 70 years, the International Monetary Fund
and the World Bank have been the pillars of the world’s economic system,
coming to the rescue of countries in trouble and supporting development
But the Bretton Woods institutions are regularly
criticised for their inability to reflect the growing and important
contributions of the major emerging economies to the global economy.
China, the world’s second-largest economy, continues to
have just slightly more voting power in the IMF than Italy, about five
And, since their creation in 1944, the IMF and the World Bank have only been led by Americans and Europeans.
“Broader global governance reforms have become stalled,
despite the many commitments made by advanced economies to emerging
markets to give them a more prominent role in international financial
institutions and other international forums,” said Eswar Prasad, a trade
policy professor at Cornell University and a former IMF expert.
In this context, the launch on Tuesday of a development
bank and an emergency reserve fund by the Brics—Brazil, Russia,
India, China and South Africa—appears to be a concrete attempt to
address those inequities.
“If the existing institutions were doing their jobs
perfectly, there would be no need to go to the trouble of creating a new
bank, a new fund,” said Paulo Nogueira Batista, who represents Brazil
and 10 other countries at the IMF, in an interview.
The mere creation of the two Brics institutions sends a
strong signal to Western powers, where some doubt the ability of the
five powerhouses to surmount their individual needs and ambitions.
The launches “are significant actions that represent a
game changer as they turn statements and rhetoric about cooperation
among these countries into reality”, Prasad said.
Still, many areas of uncertainty cloud the new Brics
structures, giving the IMF and the World Bank a long lead on their
For now, only the Brics countries will be able to draw
from the $50-billion in the New Development Bank and $100-billion in the
Contingent Reserve Arrangement.
However, proof of the new institutions’ effectiveness will come when other countries knock at their door for money.
“Will the Brics take the financial risk to lend to
other countries? And what conditions will they impose?” said an IMF
official, who spoke on condition of anonymity.
Accustomed to bailing out a country, and being
reimbursed, in exchange for austerity conditions, the IMF has the kind
of expertise that “doesn’t happen overnight,” the official said.
Some also have concerns that the Brics institutions—
dominated by China—will be less careful about safeguarding the
environment or fighting corruption when they make their financing deals.
Aware of their current limitations, the Brics made a
point to say they were working closely with the IMF. Some of their
financing would be available only to countries already receiving Fund
Dilma Rousseff, the president of Brazil, said the
creation of the Brics institutions did not mean her country was moving
away from the IMF.
“We have not the least interest in distancing ourselves
from the IMF,” she said.
“On the contrary, we wish to democratise it
and make it as representative as possible.”
Unsurprisingly, the Bretton Woods institutions responded with offers of cooperation.
The IMF managing director, Christine Lagarde, said in a
statement on Wednesday that her staff would be “delighted” to work with
the Brics team on the reserve fund.
The World Bank, facing other new development rivals and
undergoing a major internal restructuring, welcomed the arrival of an
“invaluable partner” in the battle against poverty, a bank spokesman
told Agence France-Presse.
This display of friendliness, however, could in time
give way to rivalries and battles for influence in the corridors of the
188-nation institutions, based in Washington.
“The new institutions aren’t created against anyone,” said Nogueira Batista, the IMF representative.
“But they are a first step toward a multilateral world.” - AFP
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