A prospective new financial architecture promises to reform and improve development finance for the world.
FIVE
countries came together during the week to grab international headlines
over how they might, as a group, change the world: Brazil, Russia,
India, China and South Africa (Brics).
And they would do so in
the most tried-and-tested way imaginable: financially, as a single
economic entity. As a bloc Brics may effect change on a global scale,
but the grouping would still do so in the traditional way of flexing
economic muscle.
The annual Brics summit held during the week in
Durban, South Africa, focused on what that muscle can do – challenge the
World Bank and the International Monetary Fund in the way development
finance is conducted, as well as the Western dominance that has
prevailed in both Bretton Woods institutions.
Those institutions
were never meant to be that way, of course, as a reading of their
founding texts would show. But any initial magnanimity soon gave way to
self-interest: US and European dominance of the World Bank and the IMF
respectively was to be a Western “consensus” imposed on the world like a
global neo-colonial regime.
Interestingly, the original Bric as
both a term and a grouping originated not in any of the initial four
countries or the developing world, but in the US itself.
None
other than Goldman Sachs’ Asset Management Chairman Jim O’Neill coined
the term in 2001 for those countries he believed would outpace the US in
total GDP by 2020.
At the turn of the century Brazil, Russia,
India and China were merely regarded by some as emerging economies
developing under their own steam.
After O’Neill’s coinage they
held their first summit in 2009 and invited South Africa to join them a
year later, and Brics was born.
Since then, Brics as both concept
and entity has had vigorous growth and a vibrant youth. It compares
favourably with the IMF and the World Bank, both pushing 70 years and
weighed down by limiting conditionalities and outmoded economic
ideology.
Both institutions typically adopt a cold, mechanistic
approach to development that prioritises market interests over human
needs. Their Western bias is also a throwback in a 21st-century world of
shared global interests and aspirations, and a world in which Western
economies themselves are in trouble.
In contrast, Brics as a bloc
of emerging economies serves as a bridge between the developing Third
World and the developed First World. It seeks to narrow that yawning
chasm by focusing on reviving global growth and ensuring macroeconomic
stability.
Those virtues that had once been the preserve of the
West have become its elusive goals. The “developed” and the “emerging”
(mostly, once “developing”) economies have traded places.
The new
global bank that Brics wants to establish is expected to emphasise
infrastructure development and trade. The first represents solid
investment in development for the future, and the second works as an
economic multiplier for further growth.
On paper, Brics countries
account for almost half the world’s population and just over a quarter
of world trade. But more important than these bare figures is how Brics
economies have been driving global growth for years, as acknowledged by
the World Bank itself.
The idea for a new global bank arose only
last year. So how the measured progress at the Durban summit is
perceived depends at least as much on the observer: is the glass
half-full or half-empty?
Some of the most difficult decisions,
such as financing modes, remain unresolved. Its primary purposes like
the operation of funds in project financing and a contingency fund as
crisis buffer will take more time to work out.
Pessimists may
cite how the absence of agreement on even the quantum of fund
contribution from each country bodes ill for Brics. Basing the
contribution on economic capacity makes sense, but concerns were
expressed over how that would inevitably make a hulking China dominant.
A
standard sum of US$10bil (RM31bil) from each country as seed capital
was then considered, following a Russian proposal, but the final
decision was left until later.
Optimists would say that far from
weak indecision, this showed an openness about not wanting any country
to dominate, with agreement on equality with a fair and manageable
quantum for all.
However, realists may say that in such financial
matters China would still eventually dominate. To that, it can be said
that dominance by a single country was never a problem before, given the
prominent US role and influence in the World Bank and the IMF.
At
this point some may say it was precisely because of single-power
dominance that had compromised the work of the Bretton Woods
institutions. It might then be observed that a new global bank dominated
by China would only balance the World Bank (and the IMF), which it
would complement rather than replace.
Some observers may see crippling incompatibility in the different political systems within BRICS.
But such diversity need not be an obstacle, particularly when all countries now work within a global capitalist system.
President
Vladimir Putin, often cited in Western circles as a modern incarnation
of the Soviet bear, even insisted that a new global bank “must work on
market principles only.” And “communist” China is not only a major and
enthusiastic player in global markets, but – to former British foreign
minister David Miliband – has even acted as a saviour of Western
capitalism.
What worries fans of the IMF and World Bank is not
how a new global bank as competitor will “steal their business,” but how
it may force both to be more democratic and more sympathetic to the
developing world. Who else but those currently dominating them in
Washington and Brussels would object?
Japan as an emerging
economy itself decades ago had its chance to forge a new alternative in
international finance with the Asian Development Bank, but blew it.
The
former coloniser in Asia seeking to make good in its post-war period,
with US partnership, soon settled into establishment mode alongside its
Bretton Woods equivalents. A new global bank established by BRICS will
be a welcome addition to the existing financial institutions.
Its continental and political diversity would also make a slide into betraying its noble purpose more difficult.
Late last year, Brazil suggested that the proposed bank should be modelled on Asean’s Chiang Mai initiative.
This
is a time for a sharing of experiences when each can learn from the
rest, not of jealous exclusion and unfounded fears of rivalry.
In
time, perhaps even the World Bank and the IMF can find it in themselves
to accommodate and welcome new financial institutions operating on
their “turf”.
At least that would help them return to their initial noble calling.
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