Developing and emerging countries have far too little influence in important economic institutions such as the World Bank and the International Monetary Fund (IMF). The New Development Bank is a concrete protest against the global institutions not keeping up with the shifts in power that are taking place in the world today. It writes Amanda Svensson, a recent graduate student at the University of Gothenburg.
In recent decades, the global political and economic landscape has changed dramatically. In 2014, China surpassed the United States as the world's largest economy in terms of purchasing power, and emerging and developing countries now account for about 50 percent of global GDP, which is close to doubling since the 1960s. Cooperation between developing countries has also increased markedly, and now accounts for 10 percent of international development cooperation.
Financial institutions are not involved
Despite the economic shift in power that the change in the global landscape entails, advanced economies still have a greater representation in international financial institutions (IFIs), such as the World Bank and the International Monetary Fund (IMF). These financial institutions constitute important components of the network of institutions that constitute international governance, and the fact that countries have a proper representation in IFIs is thus of great importance for the possibility of influencing international policy.
On this basis, criticism has been leveled at the voting structure of both the World Bank and the International Monetary Fund (IMF), and in 2010 the World Bank's Development Committee voted through a restructuring of the voting structure of the two institutions. However, this restructuring has not been possible as it has not been approved by the US Congress, as the US with just over 16 per cent of the World Bank's holdings is the only country with a veto on structural changes in the bank.
Emerging economies dissatisfied with the IMF and the World Bank
The inability of the IMF and the World Bank to reflect global change is noticeable not least when looking at the five emerging economies that go by the acronym BRICS - Brazil, Russia, India, China and South Africa. Together, these five countries hold 46 percent of the world's population and just over one - fifth of global GDP, but only 13 percent of the World Bank's votes.
Restructuring of international governance has therefore often been a high-priority topic at BRICS summits. In July 2014, the leaders of the BRICS countries presented the establishment of the New Development Bank (NDB), whose goal is to “mobilize resources for infrastructure and sustainable development projects” in emerging and developing countries.
To illustrate the above-mentioned shift in power, I have in my bachelor thesis conducted a qualitative text analysis, with which research articles, news articles and other texts concerning NDB were analyzed. As an illustration of the shift in power, I have also made a comparison of the NDB's and the World Bank's respective statutes, to examine whether there are any differences between them.
The results from the study show that the establishment of NDB is presented as an important and constructive development of events within both international development cooperation and international governance. NDB is seen as an opportunity to increase the voice of emerging and developing countries in the international arena, and the bank is also considered to have the potential to make existing institutions problematize their working methods.
Similar business model but different power structure
My study also shows that NDB differs from the World Bank in a number of points, the most obvious difference being that in the banks' voting structure. In NDB, the voting power is divided equally between the five founding member states, and when new member states are approved, the BRICS countries' share of the votes must not be less than 55 percent, which guarantees the bank a majority of emerging countries.
The total voting power of member countries that do not take loans from the bank may not exceed 20 percent, which can be seen as an attempt to limit the influence of those countries that are not directly affected by the bank's loan terms. The bank's agenda should instead be set by the countries affected by the loans. There is no similar regulation regarding the voting structure in the World Bank, which has meant that the United States alone holds more than 16 percent of the voting shares. As for NDB's business model and the way in which it will mobilize capital, the similarity with the World Bank is great.
BRICS as an important power factor
These similarities and differences can be interpreted as a manifestation of the conflict over power in international governance that the changing global political and economic landscape has resulted in. The similarities of the banks, in particular, show that the mere existence of the bank can be interpreted as such a on the reluctance of advanced economies in existing IFIs to reform.
The fact that emerging and developing countries are now creating their own financial institutions is a clear indication to advanced economies that this reluctance is no longer tolerated and that BRICS is now a significant power factor in international governance. What the BRICS countries consider governance to be in need of is not radically different financial models but rather a more multilateral governance structure that represents the changing global landscape. With its majority of emerging countries, the NDB has the potential to contribute to such multilateralism.
The very fact that the BRICS countries are guaranteed a majority in NDB shows that the bank is an institution with the opportunity to give a vote to the countries that in the current IFIs hold too small a share of the voting power in relation to both economic, political and population size.
The BRICS countries' demands for a more representative international governance structure now go beyond including demands for reforms in existing institutions. The conflict has manifested itself in a constructive change that has resulted in another player in the global networks of decision-making, which now has the opportunity to increase the representation of emerging and developing countries in the networks of power that constitute international governance.