G-20 deal sets up BRICS to backstop eurocrisis
Power shifts are on display at the G-20 in Mexico as emerging markets pledge funds to the International Monetary Fund in order to avert a European meltdown and its global impact.
One of the more controversial outbursts at the G-20 in Mexico this week came from European Commission President Jose Manuel Barroso, who, on the defense about the eurozone crisis, told reporters: “We are not coming here to receive lessons in terms of democracy or in terms of how to handle the economy.”
For many observers, it's also one of the most telling comments – underlining the way the world order is changing and how the traditional powerbrokers are reacting.
At a more micro level, these power shifts are on display at the G-20 in Los Cabos, Mexico, where emerging economies are pledging additional funds to the International Monetary Fund (IMF) in order to avert a European meltdown and its effect on the global economy.
According to Reuters, China has offered a $43 billion contribution to new IMF reserves. The other nations in the coalition of emerging world powers called the BRICS that includes Brazil, Russia, India, China, and South Africa, also agreed to increase donations to the IMF, with India, Brazil, and Russia pledging $10 billion and South Africa $2 billion. Mexico also pledged $10 billion.
“The amounts of money are not significant, but it is symbolic of a spirit of cooperation, and symbolic of the arrival of [emerging] countries,” says Manmohan Agarwal, a visiting fellow at The Center for International Governance Innovation in Ontario, and who has worked at the IMF and the World Bank.
Emerging markets have long sought more of a voice at international lending institutions, such as the IMF and World Bank – a desire highlighted by Agustin Carstens, head of Mexico's central bank, when he ran for the IMF's top spot against Christine Lagarde, who ultimately won.
The BRICS countries especially, whose growth has exceeded that of the developed world and today represent 18 percent of global economic output, have demanded more of a say.
A reform was passed in 2010 at the IMF to reflect the changing economic map, which included, among other things, giving emerging nations more voting power by more than 6 percent. The reform also called for greater representation of emerging markets on the IMF's executive board, replacing two seats currently filled by European countries with representatives from the developing world.
The BRICS are seeking to make their pledges to the IMF contingent on reforms being implemented. "These new contributions are being made 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 BRICS said in a statement.
Pledging funds could send a signal that these countries deserve more clout – not just for their economic viability but because of their new willingness to cooperate, says Eric Farnsworth, vice president of the Council of the Americas, a consultancy based in New York. “For emerging markets, which have traditionally been recipient countries and are now becoming donor nations to the first world, this is an opportunity,” he says. “In addition to turning history on its head, this actually gives these countries ... the opportunity to make a statement financially that they have the resources, that they have the political will, and [that] they have the vision to support the global public good.”
For example, he adds, “If you are promoting the idea that the international system is important for Mexico, not just for what Mexico can get out of it but what it can give to it, it changes the dynamic quite dramatically.”
IMF managing director Ms. Lagarde welcomed the pledges saying in a statement: "These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members.” She said pledges reached $456 billion, and could grow.
The 2010 IMF reforms have been delayed for a host of reasons, but includes an underlying resistance to change – what Mr. Agarwal sees reflected in Barroso's comments. “Traditionally, when power structures change, it had been done through wars,” he says. Now it's through negotiations. “And the existing powers don't want to give up the power they have.”
It will be a long time, he says, until the playing field levels out. The reforms passed in 2010 were only minor, for starters, and they are still not implemented. “The muscle [of emerging markets] is enough to prevent unfavorable agreements or actions that hurt them but it is not enough power to push things onto a plane that would be helpful for them.”