Leaders of the world’s biggest emerging economies—Brazil, Russia, India, China, and South Africa, known as the BRICS—approved the creation of a new currency reserve fund and development bank on July 15 at their summit in Brazil. Neither invention is much needed, but for the inventors, this is beside the point.
The five governments agree on one thing: They’ve been denied a proper say in running institutions such as the World Bank and the International Monetary Fund, and in global economic governance more generally. They are correct to think so. Their mistake is to believe that the new bodies will put things right.
The new development bank is expected to be financed with relatively modest startup capital of $100 billion, with the five members contributing equally. Once it’s up and running, it will support investment in infrastructure—dams, roads, energy generation, and the like. Such projects are already financed by the much larger World Bank and other official lenders, to say nothing of the global market for private capital. In fact, cross-border private capital is so readily available for good emerging-market borrowers that even the World Bank has to explain why it’s needed any longer.
The proposed currency reserve fund is no easier to justify. It’s expected to start with a joint commitment of $100 billion, with $41 billion contributed by China. The total pool will be equivalent to 2 percent of the BRICS’ joint reserves. The idea is that the countries would be able to tap this fund if they run into balance-of-payments problems. Fine, but because the IMF already exists for that purpose, what’s the point?
That leaves the underlying grievance: The five nations have sufficient weight in the world economy to justify a much bigger say in running the existing multilateral agencies. Rich-country governments have acknowledged this for years—yet, to their shame, they have let the injustice persist. For instance, they continue to use their voting weight to defend the convention that a European nominee leads the IMF and a U.S. nominee leads the World Bank. The BRICS are right to find that insulting as well as anachronistic.
Yet they could press their case much more effectively if they would act in concert when it counts. They failed to agree on a candidate to lead the IMF in 2011 and the World Bank in 2012. And they remain divided on goals and negotiating strategies for global trade talks at the World Trade Organization.
Developing a collective agenda is bound to be difficult for a group whose members have little in common and, except for a desire to be treated with respect, few shared interests. Creating the new institutions, though, adds little to that endeavor and will involve needless expense of time and effort. To win their fight for the status they deserve, the BRICS must choose their targets more shrewdly.