In this one, the BRICS nations’ rebellion against Western-run pillars of the global financial system is more than just a political gesture: It is a threat and a bargaining tool.
The World Bank has a subscribed capital of $223.2 billion, paid in or payable by 188 countries. The U.S. is the biggest shareholder with 16 percent. China is the third biggest, with 5.76 percent, which makes its share of the World Bank’s capital $12.86 billion. So the $10 billion it agreed to put into the BRICS Development Bank won’t be much smaller. Russia, India, Brazil and South Africa, all contributing equally, will pay in more money to the BRICS bank than they do to the World Bank.
The contributions that nations make to the International Monetary Fund — which has $315 billion in immediately available resources and more than $1 trillion it can get under certain conditions — are also determined by the relative sizes of their economies. The U.S., again, is the biggest contributor. Russia’s IMF quota is $9.19 billion — roughly half the $18 billion it will provide to the BRICS nations’ last-resort pool, the $100 billion Contingent Reserve Arrangement. China is contributing $41 billion to the reserve, almost three times its IMF quota.
These new institutions should not be easily dismissed: They are a big deal for the contributing countries. They will not rival the World Bank and the IMF in size, yet they don’t need to: For now, at least, they will be far less global in terms of their responsibilities.
The reasons for building up alternatives to the IMF and the World Bank are in part political. Ukraine, for example, is now the IMF’s fourth-largest debtor. Funding for the government, doing its best to leave the Russian sphere of influence, would not have been on President Vladimir Putin‘s priority list. Indeed, Russia appears to be financing a rebellion against the government in Kiev, and Putin must gnash his teeth when he thinks about the further IMF disbursements — more than $13 billion — that were pushed through for Ukraine by its Western allies.
The IMF is promising to reform itself, giving more power to the large developing nations: By January, China should have the third biggest quota, and Brazil, India and Russia should all be in the top 10. Putin, however, thinks changes to the system are being “unreasonably delayed.” The U.S. Congress is in no rush to approve the changes, and the year-end deadline might be moved again.
Besides, even after the reform, the West will have considerable power in deciding how to allocate funds. Although the IMF says its criteria are purely economic, Putin, for one, knows that isn’t so. He remembers how Russia begged for a bailout in 1998, just before defaulting, receiving one at a time the country did not meet any of the policy criteria that the international lenders of last resort usually set out.
The IMF’s other big debtors are not ones the five big developing nations care about: Why would they give $23.5 billion to Greece, $22.9 billion to Portugal and $19.4 billion to Ireland if these nations’ share in their trade balances are negligible? By helping to bankroll bailouts on the periphery of the European Union, the BRICS countries propped up a global financial system that doesn’t necessarily benefit them. The BRICS paid up, but they could easily exist in a world without a euro area. They resent the de facto power the U.S. and EU have over their money.
The willingness of the BRICS to commit more resources to their new institutions than the existing ones suggests they are serious about changing the system. The U.S. and its allies are left guessing whether the BRICS countries might eventually stop funding the IMF and the World Bank. That will not happen in the near future, in part because China, India and Brazil are among the countries with the biggest exposure to World Bank funding, and in part for political reasons: No one, except perhaps Putin, wants to split the world into hostile camps. The threat to abandon the post-World War II financial system unless it changes quickly is real, however, and the West will have to accommodate the big emerging nations if it wants to hold on to a few shreds of Fukuyama’s wishful thinking.
First published in Bloomberg View.