A newly proposed ‘world bank’ by the new emerging economies, better known as the BRICS (Brazil, Russia, India, China and South Africa), is sending a message to Western-dominated institutions either to reform or prepare for a competing alternative that is already evolving.
For more than 60 years, the World Bank and the International Monetary Fund (IMF) — known as Bretton Woods institutions — were dominated by Western countries that shaped the post-Second World War politically and economically.
The concrete example of this hegemony is that both the US and Europe have controlled the top posts with Washington monopolizing the World Bank and Europe, mostly France, the IMF’s top executive post.
In addition, the two institutions were seen by many developing countries as tools used to enforce Western interests by conditionally releasing economic and monetary aid after meeting certain terms that usually delve into domestic affairs of countries in question.
It’s a fact that Washington failed to ratify the 2010 agreement that called for sharing most of the two institutions’ powers with the emerging markets. In a snub to this agreement, President Obama’s administration pushed for the appointment of Jim Young Kim as president for the World Bank against candidates from Nigeria and Colombia.
Africa, the fastest growing continent economically, is having only three seats in the World Bank’s 24-seat board.
Interestingly, this domination seems to be the only concrete achievement of the two institutions, who can hardly point to any specific success story for their approaches to economic and monetary reforms in the world.
In fact, questions emerged about the viability of these two bodies given the rigid prescription formula they used to advise the economies worldwide.
Their problems were compounded with the privatization trends that have unleashed huge financial resources and enabled many private institutions to handle infrastructure projects.
As a result, getting an economic health certificate became no longer a necessity to tap world financial markets.
The IMF in particular started to face question marks for its identity and mission during the last decade.
The 2008 world financial crisis, however, turned out to be a blessing in disguise as it provided the IMF with a new mission, ironically this time with the developed world where the euro zone crisis intensified and bailout became a constant headache shifting from Ireland to Spain, Greece and Cyprus, and the problem still drags on.
It was interesting that the World Bank welcomed the idea to set up the new bank calling it an “invaluable partner.”
The meeting held last week in Durban, South Africa, was intended to establish a new bank focusing on infrastructure and development in emerging markets as well as pooling their reserves as a bulwark against future crisis, be it in terms of currency fluctuations or mere economic shocks.
A $ 100 billion fund is proposed for that purpose.
Talks have been centered on capitalizing the new institution on $ 4.5 trillion, though no agreement has been reached on the seed money to start with or its location and, more important, the distribution of its shares and the power the stakeholders will carry.
The Durban meeting did not progress that much from the previous one. However, another gathering for the group is expected to take place on the sidelines of the G-20 meeting to be hosted by Russia in September or the BRICS meeting scheduled for next year.
Western media analysts, however, suggest that the BRICS have a long way to go to come up with a credible alternative to existing Bretton Woods institutions and that they are more of competitors than partners and that only 2.5 percent of their investments were placed within their borders, while the bulk, or 40 percent to be exact, find their way to the mature markets in Europe, the US and Japan.
More important is the feeling expressed sometimes by even developing countries’ leaders that they don’t see the emerging giants of China and Russia as more different in their approach to the developing countries than the one of the previous colonial powers.
That could be true, but still the BRICS is an economic giant that keeps consolidating its economic base and political clout as time goes by. After all, it constitutes 43 percent of the world’s population and 17 percent of its trade, in addition to an estimated $ 4.4 trillion in reserves.
The real issue actually is whether the Western countries will be willing to concede some of the power and domination they have accumulated as a result of the post-Second World War arrangements given the changes taking place in the world arena or not.
The 2008 financial crisis that turned into an economic one with political fallout have sent alarm bells.
The move to establish the ad hoc G-20 is seen as a way to respond to that challenge and accommodate new realities, but it seems a lot more is required to be done and there is a long way to go.
