Looks like the BRICs started playing hardball with the IMF at last by threatening to withhold additional financing requested by the Fund to fight the European sovereign debt crisis unless they gain greater voting power at the Fund. So far this this is not happening largely because of US opposition so the endgame would probably take place in Washington. What does this mean for developing countries whose governments must live with IMF conditionality?
It’s a complicated question because BRICs are not a homogenous compound. But the least one can say is that other developing countries will have allies who openly adopted heterodox policies, such as capital controls, and who openly critiqued the Euro-Atlantic orthodoxy of austerity, depressed labor costs and quantitative easing. “This crisis started in the developed world,” the Brazilian president said at a recent BRIC summit in India. “It will not be overcome simply through measures of austerity, fiscal consolidations and depreciation of [labour costs], let alone through quantitative easing policies that have triggered what can only be described as a monetary tsunami, have led to a currency war and have introduced new and perverse forms of protectionism in the world.”
The Brics are no small fish. They represent about 45 per cent of the world’s population and a quarter of the global economy at $13.5tn. They are not an institution yet but FT tells us that “they set up a finance minister-led working group to consider formally creating a common Development Bank for the grouping.This is the first step towards an emerging market bank and comes as the five countries have demanded greater financing support from the World Bank for infrastructure development.” If it goes through, this initiative could be a game-changer in international development finance, provided that BRICs positions will align around more heterodox ideas than the IMF and the World Bank allow for.