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Tuesday, April 10, 2012

World Bank could use a competitive advantage


CANBERRA — From a turn of phrase by Jim O'Neill of Goldman Sachs in 2001, a grouping was born in 2009. BRICS (Brazil, Russia, China, India and South Africa) make up two-fifths of the world's population, one-fifth of world gross domestic product and one-seventh of world trade. Yet, they account for two-thirds of world growth, with competitive edges in different areas, from abundant natural resources to strengths in manufacturing, information technology and biotechnology.

By 2025 the world's Group of Eight economies is likely to consist of the United States, China, India, Japan, Germany, United Kingdom, France, and Russia.

BRICS pose a challenge to the U.S.-dominated global architecture comprising the trinity of the United Nations, World Bank and International Monetary Fund. On the eve of the first BRIC (South Africa joined just last year) summit in Russia in 2009, Brazilian President Lula da Silva wrote of "broken paradigms and failing multilateral institutions." The deficiencies have eroded the legitimacy and credibility of the international institutions and fostered mistrust between the established, rising and developing countries.

The system that privileges Western powers and their biases is out of synch with the new realities. At the fourth summit in New Delhi on March 29, BRICS advanced from being simply an expression of frustrated entitlement to sketching the outlines of an alternative configuration of global governance. They have warned that they mean to use their demographic and economic clout to challenge how the world is governed through formal multilateral machinery and informal groupings.

They underlined the urgency of enhancing "the voice and representation of emerging markets and developing countries" in the Bretton Woods institutions in order to "better reflect economic weights."

The criticisms of the voting formula, funding priorities and executive directorship of the International Monetary Fund and the World Bank reflect frustrations at how they are run as well as growing self-confidence in their own roles as responsible stakeholder-managers of the system of global economic governance.

The first test will come soon with the choice of the next president of the World Bank. By well-established convention, Washington has chosen the World Bank president while Europe has picked the IMF head. Their combined clout has protected this cozy arrangement. Of the three World Bank candidates, American nominee Jim Yong Kim is good; Nigeria's Finance Minister Ngozi Okonjo-Iweala and Colombia's ex-finance-agriculture minister Jose Antonio Ocampo are excellent.

The World Bank is the world's leading development institution. Its clientele are the emergent and developing countries. Its past record has often been criticized for privileging the views and interests of donor countries and their financial and corporate sectors. Westerners' knowledge of poverty, growth to lift nations out of poverty, and distribution of the benefits of growth to reduce inequality, no matter how sophisticated, are derived largely from books. They cannot empathize with real-world policy choices that developing country governments face.

How can Kim's experience of running a small, if elite, American university compare with the other two candidates' experience of being finance ministers of developing countries? Kim's international experience is having run the HIV/AIDS program at the World Health Organization. Okonjo-Iweala has been vice president of the World Bank and Ocampo used to run the U.N.'s regional economic commission for Latin America, the best of the lot. Okonjo-Iweala also has a reputation for battling corruption.

Okonjo-Iweala and Ocampo have economics doctorates from MIT and Yale, while Kim's degrees are in medicine and anthropology. Had Kim actually lived through the transition of South Korea from a developing to a modestly rich country, and served as a minister to oversee that, he would have been a worthier choice. He moved to the U.S. at age 5, and his previous writings hint at skepticism toward growth-led models of development.

The critical international principle of equitable geographical representation will also be compromised if the heads of the U.N., the World Health Organization, the International Atomic Energy Agency and the World Bank are all East Asians.

In an open, fair, transparent and merit-based competition based on formal qualifications, relevant experience, professional competence, international networks and diplomatic skills, Kim would not be on the final shortlist. The best thing going for him is his sponsor. If that proves sufficient, the outcome will reflect more on the entrenched culture of backroom deals — which extends several rungs down into both the World Bank and the IMF — than on the other two candidates. The internationalist principles of the trans-Atlantic alliance and the institutional integrity of the World Bank alike will be compromised. The world's 2 billion poor deserve better.

The choice will prove whether international financial institutions can be globally and not tribally owned. The wrong result will accelerate moves toward a BRICS development bank. BRICS leaders have called for a study of the feasibility of creating a new South-South development fund. Meanwhile, they have initiated steps toward facilitating South-South trade in local currencies, trimming the role of the dollar as the global currency and reducing the exposure of developing countries to the vagaries of the under-regulated international financial system. The ambition is to double intra-BRICS trade to $500 billion by 2015.

The current period is one of diminished and messy multilateralism in which rising powers jostle for competitive advantage with established powers in global, regional (Asia-Pacific Economic Cooperation) and the ad hoc Group of 20 institutions.

BRICS point to the potential of a world order more principled in global norms, with stronger representation of emergent and developing countries and more evenly weighted decision-making.

Ramesh Thakur, professor at Crawford School, Australian National University, is the author of "Global Governance and the U.N.: An Unfinished Journey."


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