Peter Chowla, guest blogger
Part of the Triple Crisis Spotlight G-20 series.
A joint statement by Brazil, Russia, India, China and South Africa (BRICS) released in the middle of the G20 summit in Los Cabos spelled out their plans for contributing to a boost in the resources available to the International Monetary Fund. The IMF wanted more money to backstop countries from the risks facing the global economy, most notably in Europe. Did the BRICS just cave in to pressure and, through the IMF, bail out European banks who lent recklessly? Or is it part of a broader agenda of emerging markets to reform global economic institutions?
The Los Cabos BRICS announcement was not new, but merely a spelling out of a commitment already made in April. That April meeting of G20 finance ministers noted “firm commitments” to increase resources to the IMF by over $430 billion, in addition to the IMF quota increase agreed in 2010. This April statement included $68 billion from “China, Russia, Brazil, India, Indonesia, Malaysia, Thailand and other countries”, showing “the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing.” The breakdown of the contributions from the emerging markets was not announced at the time.
Now China has ended up committing $43 billion; Brazil, Russia and India each pledged $10 billion; while South Africa offered $2 billion. This slightly bigger than expected BRICS package of $75 billion bumped the IMF’s total funding increase to $456 billion. The contributions from India and Brazil especially have been criticised by civil society groups, who ask how so much money can be given, from countries with lots of poverty, to an institution which is viewed as having damaged their economies in the 1990s.
The entire resource increase is being accomplished through bilateral loan agreements and not through the IMF’s standing funding mechanisms, such as the paid-in quota or the New Arrangement to Borrow (NAB). This is partly because the US is unwilling to participate in the resource increase and partly because both the US and Europe don’t want new contributions to affect their outsized voting rights in the Fund.
However, the BRICS have not made new contributions without conditions, as their joint statement said: “these resources will be called upon only after existing resources, including the [NAB], are substantially utilised” and the money was provided “in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares.” The contributions – unlikely to be ever drawn upon, as the IMF would first have to lend out both its entire existing war chest of $380 billion and a pending quota increase – are merely another enticement and reminder that the BRICS have money and are demanding change.
We should put the not-so-new money in context as well. As pointed out on this blog by Ilene Grabel, the May meeting of the ASEAN+3 group in Asia announced the doubling of a regional reserve pooling arrangement. That means China committed more than $38 billion in new money to the Chiang Mai Initiative, roughly on par with the IMF increase.
In the same Los Cabos announcement from the BRICS, we also learned that their leaders had “discussed swap arrangements among national currencies as well as reserve pooling”. The idea is that the BRICS would set up their own emerging market monetary fund to cushion each other against shocks in the global economy. Of course this is only an idea at this stage, and a long way from fruition. The BRICS finance ministers were instructed to study the swaps and reserve pooling ideas and report back to the next BRICS leaders’ summit in 2013. This study will coincide with the idea that the BRICS might set up their own development bank as well.
All in all it shows that the emerging powers are not taking for granted a world in which the IMF is at the centre of global economic governance. They are hedging their bets, waiting to see whether the traditionally Western-dominated institutions can be moulded in their own interests, and looking for some institutional plurality. At the very least it is good that the BRICS demand much deeper changes in IMF governance and policy, and that they use their vast resources to achieve it.
Of course it is unclear whether a world with competing centres of power and without centralised global coordination will prove more conducive to sustainable development and reductions in inequality than the IFI-dominated world of the past. A big question is how small economies will fare in such an environment. But given the records of the World Bank and IMF over the past 40 years, it’s probably worth a try.
Peter Chowla is Coordinator at the Bretton Woods Project, a London-based NGO that focuses on the World Bank and the IMF to challenge their power, open policy space, and promote alternative approaches.
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