BRICS Challenge IFIs - Bretton Woods Project

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14 SEPTEMBER 2011

BRICS challenge IFIs

Out of the frying pan into the fire?

8 APRIL 2013

Large middle-income countries jointly initiated alternatives to the World Bank and IMF in March, but ad

with either set of institutions. While challenge to the IMF has been welcomed, civil society actors fear t

bank would serve vested interests and could lead to exploitation.

At a leader-level summit in late March, Brazil, Russia, India, China and South Africa (BRICS) announced t

ment to set up multilateral institutions for both development finance and emergency financial support.

expected, largely due to BRICS anger at the failure of rich countries to sufficiently include them in the g

and Fund (seeUpdate 85 (/imfgov85)), or adequately respond to their calls for greater lending (see U

ing77),70 (/gov70)). South African finance minister Pravin Gordhan told journalists after the summit t

and World Bank still lie in the post-World War II environment. The reforms that have been undertaken s

terms of reflecting current economic and other realities around the world.

The so called BRICS Bank (seeUpdate80 (/alternatives80)) will focus on infrastructure finance. Pre-su

bank with $50 billion in capital, and that South Africa offered host the institution.However, details on t

butions, location and governance structure of the bank were discussed, but not agreed, in the summit.

serve Arrangement (CRA), to pool foreign exchange reserves among the BRICS countries, was announce

modelled on the Chiang Mai initiative, an Asian reserve pool that involves China, Japan, South Korea an

Association of South East Asian Nations (ASEAN, see Update73 (capitalflows7 )). However, in contrative, which was doubled in size last year to $240 billion (see box), the BRICS CRA is not expected to ha

IMF. Though not formally announced, Indias finance minister revealed that China is expect to contribut

dia and Brazil $18 billion each, and South Africa $5 billion.

Proliferating regional arrangements

The BRICS are not the only multilateral grouping working on new institutions. In South America, the Ba

the drawing board, despite being announced in 2007 and formally agreed in 2009 (see Update65 (/la

(/sayno56)). Uruguay became the fifth country, following Venezuela, Ecuador, Bolivia, and Argentina, t

for its creation in March 2012. However, ratification in Brazil has been stalled in the parliament, and in

moval of president Fernando Lugo from office in June 2012 knocked regional cooperation off course.

Asian regional financial cooperation has proceeded more smoothly, with the ASEAN +3 grouping agre

size of the Chiang Mai Initiative Multilateralisation (CMIM, seeUpdate73 (capitalflows7 ),67 (penThe move brought the value of the CMIM up to $240 billion, and at the same time other reforms were

IFI GOVERNANCE


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lengthening the maturities of loans, introducing a precautionary facility, and an increase in the propor

be accessed without an IMF programme in place to 30 per cent. The strengthening of the arrangement

greater trust placed in the independent ASEAN +3 Macroeconomic Research Office (AMRO), which con

behalf the CMIM. CMIM members envision increasing the IMF-de-linked portion to 40 per cent in 201

The BRICS countries have not yet decided whether either institution would have a mandate to operate

countries. These details are to be decided over the next year, with leaders meeting again in September

G20. A full agreement is expected in 2014 and the institutions to be operational by 2015.

Competition or cooperation?

For years civil society organisations have been encouraging the creation of regional financial institutio

and Fund (seeUpdate80 (/alternatives80),73 (capitalflows7 ),56 (/sayno56)), but these new initiin competition with the Washington-based lenders. In the run up to the summit, the Brazilian minister f

and foreign trade Fernando Pimenetel said: The objective of the BRICS development bank is not to be

tilateral organisation. I would like to reiterate that the goal is not to rival any other organisation but a

tives. The World Bank formally welcomed the BRICS announcement saying it stand[s] ready to work cl

to end poverty and build shared prosperity throughout the developing world.

The World Banks chief economist Kaushik Basu has expressed support for the BRICS Bank over the last

about the role of the emerging markets in the global economy. In South Africa in mid March he argued t

such a bank and that the World Bank welcomed it, highlighting infrastructure needs in developing cou

regions and pockets that sitting in Washington you are not able to provide for. There is indeed scope fo

These notes chime with the thinking of the UN Development Programme, whose mid-MarchHuman De

on theRise of the South. It argued for coherent pluralism, saying: The challenge facing the multilater

the rise of the South is not a false choice between globalism and regionalism or between older structur

by the traditional powers of the North and newer arrangements responding to the needs of the develop

tegrating, coordinating and in some cases reforming these institutions so that they can all work more ef

went on to argue: New institutions will be more effective if they work in concert with existing regional

filling gaps in funding and investment.

There seems to be a default division of responsibilities being created. The World Banks new strategy

this year (seeUpdate85 (/wbstrategy85),84 (/wbrestructure84),83 (/wbstrategy83)) looks to be

on the absolute poor with both of its goals concentrating on the poorest people in the world, but with

nomic growth. Meanwhile the BRICS Bank looks to be focussing on infrastructure in middle-income cou

World Bank has insufficient resources to engage. They may find a confluence of interests in the areas of

come countries, which looks to be a big theme for this years IDA replenishment (see Update 85 (/ida8

The CRA, on the other hand, looks to be a more direct challenge to the IMF. Kavaljit Singh, of Indian NG

western-dominated financial world since the middle of last century, the idea of a BRICS reserve fund lo

promising. In a post-crisis world full of financial risks and uncertainties, the reserve pool could potentia

nancial architecture of the 21st century by providing a concrete alternative financingmechanism to po

ance of payment difficulties or impending financial crises.


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Sameer Dossani of NGO ActionAid International argued If the CRA does not include harmful economic

to more countries, and if it can play more than a symbolic role in terms of stabilising international finan

new era in global development, one in which workers and poor communities are not made to suffer for

tional bankers.

Demanding a third approach

Civil society reactions to the BRICS announcement have overall been sceptical and cautious. Alfredo Tji

South African Institute of International Affairs was doubtful the initiatives offered a genuine alternative

smaller countries in Africa or elsewhere. In the newspaperWindhoek Observer, he wrote that the BRICS

dent from existing global power structures. It seeks to reinforce these power structures through a voice

an alternative, but merely one of continuity.

ActionAid Internationals chief executive Joanna Kerr commented on the real-life impact of harmful W

tions on loans. Their preferred recipe of budget cuts, privatisation and liberalisation too often harms na

citizens. Its important that the BRICS Bank and the CRA do not repeat these mistakes.

Dorothy-Grace Guerrero of Bangkok-based NGO Focus on the Global South focused on the role of Chin

is seen as the top contender to the North. She wondered whether it is turning out to be a sub-imperi

tinue the same or more intense practices of exploitation and extraction of natural resources from poor

rich itself? Social movements and activist academics are increasingly wary that the economic model it i

unsustainable and unjust paradigm that facilitates accumulation of wealth by a few while resulting in t

perisation of the already marginalised and powerless. Justin Fong of China-based Moving Mountains c

ment: The leadership of the BRICS are among the vested interests that make up the status quo. It is moBRICS are merely seeking to diversify their financial portfolios which in the long-run will most definitel

cial stakes of non-BRICS nations.

Bobby Peek of South African NGO Groundwork said: What the BRICS are doing is nothing more than w

doing to the South, but as the region resists such practices from the North, it must also be bold enough

tries in the South.

The contrast of possibilities between BRICS institutions being a positive force for change or continuingto argue that: Its too early to know which of these will happen, but poor communities and their allies i

for the former. Theres too much at stake to sit on the sidelines. Peek likewise suggested that civil soci

criticism that demands equality instead of new forms of exploitation.

Carlos Tautz of Brazilian NGO Instituto Mais Democracia said: For the first time in history, civil society

opportunity to monitor an international financial institution from its birth. Tautz summarised demands

institutions: 1) a wide public information policy, including norms of transparency; 2) international acc

to disbursements, an open process for discussion and decision-making with people potentially affecte

deliberative decision-making space to include civil society organisations of the countries impacted; an

olation of human rights. He concluded we do not need more non-transparent and undemocratic publi

IMF and World Bank.


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Tags: alternatives (http://www.brettonwoodsproject.org/post_tag/alternatives/), ASEAN+3 (http://www.

/post_tag/asean3/), Banco del Sur (http://www.brettonwoodsproject.org/post_tag/banco-del-sur/), BRI

woodsproject.org/post_tag/brics/), Brics Bank (http://www.brettonwoodsproject.org/post_tag/brics-ba

(http://www.brettonwoodsproject.org/post_tag/brics-reserve-fund/), BRICS Summit (http://www.bretto

/post_tag/brics-summit/), Brics-led development bank (http://www.brettonwoodsproject.org/post_tag/

bank/), Chiang Mai Initiative (http://www.brettonwoodsproject.org/post_tag/chiang-mai-initiative/), CM

woodsproject.org/post_tag/cmim/), Contingent Reserve Arrangement (http://www.brettonwoodsprojec

gent-reserve-arrangement/), CRA (http://www.brettonwoodsproject.org/post_tag/cra/)

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BRICS Challenge IFIs - Bretton Woods Project