Washington - By creating their own multilateral financial institutions, the Brics emerging-market powers of Brazil, Russia, India, China and South Africa 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 (IMF) and 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 they are regularly criticised for their inability to reflect the growing 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, which is about a fifth of the size.
And, since their creation in 1944, the IMF and the World Bank have been led solely 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.
In this context, the launch last week of a development bank and an emergency reserve fund by Brics 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.
The mere creation of the institutions sends a strong signal to Western powers, where some doubt the ability of the five nations to put aside their individual needs and ambitions.
The launches “represent a game changer as they turn statements and rhetoric about co-operation among these countries into reality”, Prasad said.
Still, many areas of uncertainty cloud the new structures. For now, only Brics members will be able to draw from the $50 billion (R533bn) in the New Development Bank and $100bn in the contingent reserve arrangement.
However, proof of the new institutions’ effectiveness will come when other countries knock at their door for money.
Some also have concerns that the 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.
Unsurprisingly, the Bretton Woods institutions responded with offers of co-operation.
IMF managing director Christine Lagarde said her staff would be “delighted” to work with the Brics team on the reserve fund.
The World Bank welcomed the arrival of an “invaluable partner” in the battle against poverty, a spokesman said.
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. – Sapa-AFP