The management structure of multilateral bodies needs change so as to reflect better the increasing prominence of emerging economies in the global order.
The $75-billion pledge by the BRICS countries — Brazil, Russia, India, China and South Africa — to the International Monetary Fund’s (IMF) latest $456-billion war chest signifies the increasing role that emerging economies are being called upon to play in the resolution of problems affecting the global economy. Regrettably, what it also underscores is that such support is not accompanied by any commitment on the part of entrenched industrialised nations to the redrawing of power equations in multilateral financial institutions, which would better reflect the new realities. The five BRICS countries have a combined voting share of slightly over 11 per cent in decision-making at the IMF, whereas they today account for between almost a fifth and over a fourth of the world’s GDP, depending on whether it is measured in nominal dollars or purchasing power parity (PPP) terms. On the other hand, the 37 per cent voting power of the top five – US, Japan, Germany, United Kingdom and France – is more or less in line with their overall share in the world economy.
No less incongruous is the fact that a growing proportion of the IMF’s resources is coming now from the BRICS and other emerging economies. The new $456-billion fund, plus an earlier $ 565-billion NAB (New Arrangements to Borrow) facility created after the 2008 global economic crisis, would dwarf quota subscriptions of member countries of some $ 310 billion that traditionally formed the IMF’s main source of financing. While the BRICS economies alone have contributed about 16 per cent of these post-crisis lendable facilities, it has, however, led to no corresponding changes in the IMF’s governance structure. Voting powers there are still linked to quota subscriptions, which have not been realigned to give greater say to fast-growing developing countries. This point was succinctly captured by the Prime Minister, Dr Manmohan Singh, while addressing the plenary session of the G-20 summit at Los Cabos, Mexico. The progress in quota reform at the IMF, he noted, “is proceeding more slowly than raising resources”.
The need for fundamental governance reforms in multilateral bodies — from IMF and World Bank to the World Trade Organisation or even the United Nations — to accommodate the concerns of emerging and developing economies is important also in the light of a completely new phenomenon: IMF’s top three borrowers today are not the likes of Mexico, Argentina and Indonesia, but Greece, Portugal and Ireland. If the enormous expansion that has taken place in the IMF’s resources in the last few years would be largely going towards rescuing banks and governments in rich countries, it could potentially impact multilateral fund flows to economies starved of even basic physical and social infrastructure. That is all the more reason for the BRICS and others to seek a greater say in decision-making in these forums. Pushing for IMF quotas that assign economic weights based on GDP at PPP, as suggested by Dr Singh, may not be a bad start.