A Development Bank of Their Own

BRIC country officials said that the EU and the US are overrepresented at these multilateral organizations and spoke of the necessity of creating a own development bank specifically focused on the BRICs.

 

IMF spring meetings/ courtesy: IMF /Photo: Stephen Jaffe

IMF spring meetings/ courtesy: IMF (Photo by Stephen Jaffe)

By Diptesh Soni

Disappointment and frustration were evident among representatives of the BRICS countries — Brazil, Russia, India, and China — last month at the annual Spring Meetings held by the International Monetary Fund (IMF) and the World Bank in Washington D.C. Representatives from government and civil society expressed dissatisfaction with the slow pace of governance reform within the Fund and Bank. BRICS country officials said that the EU and the US are overrepresented at these multilateral organizations and spoke of the necessity of creating a own development bank specifically focused on the BRICS.

For years, representatives of developing countries have been seeking more power in deciding World Bank and IMF policy. During Spring meetings, a panel convened to discuss the ongoing obstacles facing attempts at governance reform.

The 2008 Quota and Voice Reforms, which went into force in March of 2011, increased IMF donation quotas for 54 member countries by around $32.7 billion. However, subsequent reforms proposed in 2010 that would lead to a further shift of more than 6% of quota shares to emerging countries have yet to be ratified. “The quota formula [of the IMF] is an allocation device that essentially protects Europe,” said Amar Bhattacharya, Director of the Intergovernmental Group of Twenty Four. He said that the unwillingness of international financial institutions to give developing nations power is “coming at the expense of the poor and the many.”

The most notable obstacle to ratification of the 2010 reforms has been the United States Congress. Partisanship around the fight over sequestration caused Republican representatives to reject the reform bill, said Bhattacharya, despite the urgent pleas on the part of numerous academics and global policy pundits. Citing the fact that both chambers had rejected the bill in March, Bhattacharya remarked that the situation was one in which “the most democratic country is the obstacle to global democracy.”

While 136 member states have accepted the proposed amendment – representing around 71% of total voting power – the US holds nearly 18%, and thus controls whether or not the necessary 85% threshold for reform will be met.

Europeans were “grinning from ear to ear” at the failure of reform efforts, said Brazilian executive director at the IMF Paulo Nogueria Batista, Jr. The current system affords European countries substantial power, more than some thing is merited by their size and recent economic growth record. The quota share of Belgium, for example, is nearly three times greater than that of Nigeria, while that of Spain is larger than the sum total of the quotas of all forty-four Sub-Saharan African countries, said Brazilian Finance Minister Guido Mantega.

“In other words, America is unable and Europe unwilling to follow through with agreed reforms. The institution’s major shareholders are gambling, perhaps unwittingly, with the IMF’s legitimacy and credibility,” said Mantega in a statement at the Meetings.

Panel members also expressed concerns about the unwritten rule that World Bank presidents must always been American, and managing directors of the IMF European. “When the two biggest blocs have a shared interest in maintaining the current situation, that is a major obstacle,” said Daniel Barlow of the South African Reserve Bank. Barlow stressed the need for greater inclusiveness within the governance structures of the Bank and Fund,. He proposed a third chair for Africa on the IMF Board of Directors, while warning that a larger board was not a panacea for the problems of inadequate representation.

In the face of such inertia, leaders of emerging economies have taken it upon themselves to change the development community. At a conference in Durban in late March, representatives from Brazil, Russia, India, China and South Africa signed the eThekwini Declaration pledging to support the creation of a new BRICS Bank, known as The New Development Bank.

While IMF Managing Director Christine Lagarde, claimed in an interview the day before that the BRICS Bank was by no means a rival, the eThekwini Declaration represents an attempt by emerging nations to increase their prominence within international financial institutions. Following the creation of the BRICS bank, struggling economies would have a wider choice of lenders, and perhaps a smaller list of donor conditions.

If this is occurs, institutions such as the World Bank and the IMF may begin to quickly lose business.

 

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2 Responses to “A Development Bank of Their Own” Subscribe

  1. Rezvan May 15, 2013 at 11:46 AM #

    It’s the “BRICS” and the “BRICS Development Bank”, with a big “S”. South Africa is a part of the “BRICS”. South Africa hosted the last BRICS conference where the development bank ideas was discussed. You even quote from the South African reserve bank.

    • Ariel Stulberg May 15, 2013 at 12:44 PM #

      Article editor here. I made that change out of ignorance. The writer got it right. Fixing now.

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