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 projects, respectively. 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 times smaller. 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 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
fledgling rivals. For now, only the BRICS countries will be able to
draw from the USD50 billion in the New Development Bank and USD100
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 assistance. 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 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 AFP. 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."
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