Originally published on the CGS blog on June 25, 2014.
For decades the IMF and the World Bank have been the sole institutions capable of producing international financial assistance to countries as a whole. This dominance has been recently called into question with the rise of BRICS countries (Brazil, Russia, India, China and South Africa) and their united ambition to create a countervailing force in the international assistance.
To advocates, this is a fresh opportunity to generate collaboration between the World Bank, IMF and the new BRICS Bank. While critics have hailed this development as a potential challenge to world order, which has for a century seen western dominance in the field of international debt.
https://www.youtube.com/watch?v=bPHlvQDAUIo
For critics, this challenge is welcomed, particularly in the developing world. According to Al Jazeera, “to economists in the developing world, who have long criticized the World Bank and IMF as anathema to the countries they purport to help, the New Development Bank holds tremendous promise.”
Despite the obvious global north/south divide that this issue brings up, many have chosen to focus on the pragmatic approach by addressing the systematic imbalances these developments hope to address.
One is the lack of representation at the IMF and World Bank. As South Africa’s former Finance Minister explains, “The roots of the World Bank and IMF still lie in the post-World War II environment.” Despite the increase in funding and participation from developing countries, there has been little to no increase in their official role in these global institutions – particularly in regard to voting.
The most contested area of the IMF or World Bank policies for lending, however, comes not from their internal structure but from the structural adjustment policies (SAPs) of the recipient countries. SAPs have long been criticized for what some call harsh measures, such as ending subsidies, lowering wages and limiting domestic spending – which some say favors the west and is a key ingredient in modern neo-colonialism.
It is proposed within this BRICS alternative that money should be given without SAPs or strings otherwise attached so that nations can choose freely how to deal with their moments of socio-economic crisis. Chief Executive Officer for Frontier Advisory in Johannesburg Martyn Davies states to this end, “the deepest rationale for the BRICS is almost certainly the creation of new Bretton Woods-type institutions that are inclined toward the developing world.”
In order for these alternative structures to the IMF and World Bank to succeed, they will need significant financial and social support. Fortunately for the BRICS nations, they have a combined foreign-currency reserve of $4.4 trillion and account for 43 percent of the world’s population, according to Bloomberg.
“The sheer frustration at lack of reforms on other fronts seems to be binding these countries together,” economist Eswar Prasad of Cornell University says of the driving force behind this BRICS plan.
Despite accusations of neo-colonialism and a global lending system tailored to the benefit of western developed nations, the IMF and World Bank themselves are not entirely opposed to the idea. “We welcome the announcement of the establishment of a BRICS development bank and stand ready to work closely with the new bank to end poverty and build shared prosperity throughout the developing world,” the World Bank reportedly said in a statement.
World Bank President Dr. Jim Kim explains, “Every single one of the BRICS countries has an enormous infrastructure deficit that simply can’t be met by a single institution, certainly not the World Bank in and of itself. So, for us the BRICS bank is quite a natural extension of the need for more investment in infrastructure.”
In short, the World Bank recognizes that poverty and sustainable development are simply too large of an issue for any one nation or institution – and that there is a global need for greater collaboration and innovation between organizations with similar goals to achieve better results for all.
