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13.04.11

BRICs Said to Seek End to West’s Monopoly on Leadership of World Bank, IMF

Bloomberg

By Andre Soliani

Five of the largest emerging nations will push the U.S. and Europe to end their 65-year monopoly on leadership positions at the World Bank and International Monetary Fund, according to two diplomats who helped negotiate a statement by the countries.

The management structure of the institutions needs to reflect changes in the world economy, the draft statement by Brazil, Russia, India, China and South Africa says, according to the diplomats, who asked not to be identified because the final text isn’t public. The section calls for a bigger role for developing countries in global institutions, a reference to concerns with how leaders are chosen at the World Bank and IMF.

“We will insist on the fact that governance at the IMF and the World Bank cannot be a systematic rotation between the U.S. and Europe, with the other countries excluded,” Brazilian President Dilma Rousseff told reporters in Beijing April 12. “There is no reason for that.”

The 2008 banking and credit crisis and subsequent recession in the U.S. and Western Europe eroded the influence of developed nations, a vacuum the so-called BRIC countries and other emerging nations are seeking to fill. Spanish Prime Minister Jose Luiz Zapatero, in Beijing April 12-13, lauded China’s role in staving off a financial crisis in his country. China owns 25 billion euros ($36 billion) of Spain’s debt.

BRIC Summit

China is hosting a summit with Brazil, India, Russia and South Africa. Jim O’Neill, chairman of Goldman Sachs Asset Management International, coined the term BRIC for the largest emerging markets -- Brazil, Russia, India and China -- in 2001. South Africa was invited to the meeting at the southern beach side resort of Sanya as well.

Foreign currency reserves held by the five nations rose 13 percent to $3.93 trillion in the past year, accounting for more than a third of the global total, driven by their faster-growing economies. China leapfrogged Japan at the end of last year to become the world’s biggest economy after the U.S. following more than three decades of growth averaging 10 percent.

India’s GDP expanded 8.2 percent in the fourth quarter of 2010, Brazil’s by 5 percent, Russia’s 4.5 percent and South Africa’s 3.8 percent. Growth in the U.S. was 2.8 percent in the three months to Dec. 31, while the Eurozone’s was 2 percent.

World Bank presidents have been nominated by the body’s biggest contributor, the U.S., since the international lender of last resort was founded in 1946 at the end of World War II. The 10 managing directors of the IMF have all been European.

Citizenship Change

Australian-born James D. Wolfensohn, who headed the World Bank from 1995-2005, took U.S. citizenship before he was nominated. Four Frenchmen, two Swedes, a Dutchman, a Spaniard, a German and a Belgian have been elected as managing director of the IMF, originally founded to ensure exchange rate stability.

The draft statement reflects changes already under way in global diplomatic and trade relations.

South Korea in November became the first non-western nation to host a summit of leaders from the Group of 20 countries -- which itself has usurped the Group of 7 as the pre-eminent forum for world leaders.

The U.S. came under attack at the meeting in Seoul over President Barack Obama’s policies of flooding the economy with cheap money in a bid to revive growth.

The U.S. “has not fully taken into consideration the shock of excessive capital flows to the financial stability of emerging markets,” China’s Vice Finance Minister Zhu Guangyao said Nov. 8. Commerce Minister Chen Deming told reporters yesterday that the BRIC nations “still face economic overheating issues such as inflationary pressure and asset bubbles.”

China Criticized

China has been criticized by countries including the U.S. and Brazil for keeping its currency undervalued.

The IMF agreed in November to shift more than 6 percent of voting rights to developing countries, weakening the influence of European members including Belgium -- which provided the agency its first managing director -- and Germany. China became the organization’s third-most powerful member.

At the time, the IMF’s current French Managing Director Dominique Strauss-Kahn said on Nov. 6 that the decision would allow China to take more “responsibility” in the global economy.

The change in voting rights was “the biggest ever shift of influence in favor of emerging and developing countries to recognize their growing role in the global economy,” he said in a statement on the IMF’s website.

Source: Bloomberg

Post-Crisis World Institute