The IMF and the World Bank could have real competition
for the first time
During the 1997–98 Asian financial crisis, when middle-income
countries were hard hit by big capital outflows, there was an
effort by China, Japan, Taiwan and other countries to put together
an Asian Monetary Fund to offer balance of payments support.
Washington vetoed the idea, insisting that all
assistance had to go through the International Monetary Fund. The
result was a mess, including an unnecessarily
deep regional recession, as the IMF failed to act as a lender of
last resort and then attached all kinds of harmful and unnecessary
conditions to its lending.
But the world has changed a lot in the past 15 years. Last week
the BRICS countries (Brazil, Russia, India, China and South Africa)
decided to form the Contingent Reserve Arrangement (CRA) and the
New Development Bank (NDB), and the United States will not have a
veto this time. These new institutions could mark a turning
point for the international financial system.
Western media coverage of these developments has been mostly
dismissive, but that primarily reflects the concerns of Washington
and its allies. They have had unchallenged sway over the
decision-making institutions of global financial governance for 70
years, and the last thing they want to see is competition. But
competition is exactly what the world needs here.
The IMF and the World Bank were created in 1944, when the United
States was pretty much the only standing industrial power in the
world. The institutions mirrored that unipolar reality. Today
Washington still controls both institutions, with the subordinate
partnership of a handful of rich allies; the same is true for the
G-7, G-8 and G-20. In recent years, as the eurozone has become the
recipient of most IMF lending, the European directors have, of
course, been given the predominant voice on policies in this
region, but it’s still the same group of countries in charge. And
even in the World Trade Organization, which was formed in 1995 and
has a different consensual process, the founding rules were written
by the rich countries — and in this case, especially their corporations.
For decades there have been efforts to give the majority of the
world’s nations a voice at the IMF and the World Bank, but progress
has been glacial at best. The BRICS countries have
more than 40 percent of the world’s population, and China is
now the world’s largest economy, but they have
almost no voice at either institution. To say that an alternative
has been long overdue is an understatement.
The BRICS NDB has gotten the most attention, but the $100
billion currency reserve fund could prove a much bigger
breakthrough. For most countries, one of the biggest constraints
and sources of potential instability is the balance of
payments. They must have enough dollars or other hard currency
to finance imports and enough international reserves to insure
against a panicked flight from their currency. Otherwise, their
economies can fall into a crisis, a recession or other devastating
economic imbalance. Most of the damage from the Asian financial
crisis might have been prevented with timely balance of payments
support.
But the harmful macroeconomic conditions attached to IMF lending
have continued. Just look at Ukraine, where the economy is
shrinking by 5 percent this year and the IMF is imposing austerity that will prolong and
possibly deepen the recession. An examination of IMF policies
during the global recession of 2009 showed that 31 of 41 countries with IMF agreements were
subjected to pro-cyclical macroeconomic policies — that is,
policies that could be expected to worsen an economic downturn or
impede recovery. And although the IMF is only the junior partner in
the troika, with the European Central Bank and European Commission,
together they have dragged Europe through years of unnecessary recession and the
collective punishment of mass unemployment, and that has hurt most
of the global economy — including the BRICS and other developing
countries.
The BRICS’ defection is part of a process that has been taking place over the past 15 years, in which
middle-income countries have accumulated sufficient reserves to
vote with their feet and break out of the IMF’s orbit. Although
most economists and most of the major media have ignored it, the
IMF’s loss of influence over economic policy in most middle-income
countries is one of the most important developments in the
international financial system in the past half-century. It has
almost certainly contributed to the rebound of economic growth in most developing
countries over the past decade. It is also, not coincidentally, a
huge loss of influence for the U.S. government, which has
traditionally used the IMF’s creditors’ cartel for its own imperial
purposes.
The BRICS’ new CRA has the potential to break the pattern not
only of U.S.-EU global dominance but also of the harmful conditions
typically attached to balance of payments support. It could prove
very important in the next few years: A lot of money has poured
into emerging market government bonds since the Fed set short-term
interest rates at zero more than five years ago. A lot of it could
up and leave when the Fed decides to raise interest rates here.
Such rate hikes were a major cause of the Mexican peso crisis in
1995 and hit other countries such as Brazil and Argentina a few
years later. The BRICS countries have indicated that they are open
to having other countries join. China has about $4 trillion in reserves, so it has the potential
to contribute vastly more and probably still come out ahead, as
most of its reserves will likely be losing money in U.S. Treasury
bonds. There’s no telling how soon this new fund will be up and
running or how big or inclusive it will grow to be. But the upside
potential for the world economy is very big.
Mark Weisbrot is a co-director of the Center for Economic and Policy
Research in Washington, D.C. He is also the president of
Just
Foreign Policy.
The views expressed in this article are the author's
own and do not necessarily reflect Al Jazeera America's editorial
policy.
http://america.aljazeera.com/opinions/2014/7/brics-developmentbankimffinance.html
By Dr. Sawraj Singh
The 6th BRICS Summit in Fortaleza, Brazil just concluded. Dilma
Rousseff, President of Brazil; Vladimir Putin, President of Russia;
Narendra Modi, Prime Minister of India; Xi Jinping, President of
China; Jacob Zuma, President of South Africa; attended. Cristina
Fernandez de Kirchner, President of Argentina was the invited
leader. The main agenda was to set up a BRICS development bank. The
group signed a document to create a $100 billion BRICS development
bank and a revenue currency pool worth over $100 billion. The
bank will be located in Shanghai and an Indian will be the first
President of the bank.
The BRICS countries together form about 46% of the world’s
population and about 20% of the world’s economy. Their share of the
world economy is rapidly increasing. The investment banking firm
Goldman Sachs Group has projected that by 2030, the Chinese economy
is going to supersede the American economy, and by 2050, the
Chinese economy will be double the size of the American
economy.
The same projection shows that after 2050, India’s economy will
also supersede the American economy. It is obvious that the BRICS
countries will play an ever-increasing role in the world economy
and world affairs. Many other countries have shown interest to join
BRICS. Argentina is almost sure to join. South Korea, Mexico,
Turkey, and Indonesia have shown strong interest in joining the
organization. Not only the area and population base of the
organization will represent more than 50% of the world, but
eventually, the organization will also represent more than 50% of
the world’s economy.
After World War II, the present global economic institutions,
the International Monetary Fund (IMF) and the World Bank, came into
existence. They openly promoted western monopoly and hegemony. It
is not an exaggeration to say that these institutions were based
upon inequality and injustice. Their constitutions did not let them
give a fair representation. The western countries were given more
voting rights and control.
As the share of the West in world economy and world trade
continued to decline, and that of the East continued to rise, there
were repeated attempts by eastern countries to change these
institutions so that they reflected more the changing equations and
shifts in world power. However, the western powers refused to bring
any meaningful changes. This led the eastern countries to develop
parallel institutions. BRICS is one of such institutions which are
challenging western hegemony.
The summit brought the three major eastern countries, Russia,
China, and India, together. Prime Minister Modi of India had a very
lengthy meeting with President Xi Jinping of China. It was
scheduled for 40 minutes, but the meeting lasted 80 minutes. The
two countries want to promote mutual understanding and cooperation,
particularly in the economic field.
The Chinese President will visit India and the Indian Prime
Minister is expected to visit China later this year. China will
help to develop infrastructure in India. China will also try to
narrow the trade gap between the two countries. China and India
will try to develop their economies in a mutually complementary
fashion.
India and Russia also got a chance to revive their traditional
and time-tested friendship. Prime Minister Modi told Putin that the
Indian people have always considered Russia as their most trusted
friend who has always stood by them. Putin also thanked India for
taking stands different than the western countries, and that these
Indian stands have helped Russia to fight western efforts to
isolate Russia.
It became clear in the Summit that Russia, China, and India have
a lot more in common than differences among them. All three
countries have realized that they are not going to get an equal,
fair, or respectable status in the present western-dominated world
order. Therefore, they have to work together to change the present
unipolar world order to a multipolar world.
The western domination of the last two centuries and American
hegemony of the last half century are not going to last much
longer. The 6th BRICS Summit and the interest shown by other
countries, particularly the Latin American countries, to join and
work with BRICS shows that there is very broad support in opposing
western domination and hegemony. The BRICS Bank will challenge the
World Bank and IMF, eventually forcing these institutions to either
fundamentally change their attitude or become irrelevant and
marginalized.
The rise of BRICS represents the rise of the East. The rise of
the East does not mean that western domination and hegemony will be
replaced by Eastern domination and hegemony.
The overwhelming response BRICS is getting in Latin America
shows that as opposed to the western narrow-minded approach, the
eastern approach is universal. Eastern philosophy has always been
universal. Sri Guru Granth Sahib, which I believe represents the
highest evolution of Eastern philosophy and the zenith of Eastern
spirituality, is truly universal and has a true global perspective.
The world needs such philosophy which is truly universal and can
impart a true global perspective, which the present globalization
lacks.
BRICS Bank will create competition for the World Bank, IMF, and
other similar regional funds. BRCIS nations have criticized the
World Bank and the IMF for not giving developing nations enough
voting rights.
One of the goals of the Bank is to increase the amount of money
loaned to developing countries to help with infrastructure and
those programs which help majority of people by improving the
quality of their lives. Healthcare and education are some such
fields.
As John Perkins pointed in his book Confessions of an Economic
Hit Man, the U.S. and the World Bank forced the developing
countries to abandon such programs and instead adopt those programs
which would increase gap between the rich and the poor.
Concentration of wealth created a comprador wealthy class which
could be easily controlled by the U.S. The BRICS Bank will
hopefully try to reverse such practices.
http://thelinkpaper.ca/?p=38953
