EUROPE and the United States have “misused” the World Bank and International Monetary Fund for their own ends, according to an executive at a new bank launched by major developing countries.
While such an accusation is hardly new, it is unusual for it to come from a rival institution.
“The Washington institutions fundamentally reflect the point of the view, the interest, the ideology of the North Atlantic powers, the Europeans on one hand the Americans on the other,” Paulo Nogueira Batista, vice president and chief risk officer at the New Development Bank, told reporters in an interview.
The remarks come as the World Bank and IMF, long-standing pillars of the post-war global economy, gather this week in Washington for their annual meetings — and as Washington and Brussels confirmed their de facto monopoly on the institutions’ leadership.
As has been the case since their creation, an American citizen, Jim Yong Kim, has just been reconfirmed as World Bank president, while in July France’s Christine Lagarde also began a second term as head of the IMF.
“The unwritten rule shows that change in these institutions is slower and the expectation that they will change has been reduced compared to what it was during the 2009-2010 crisis,” said Nogueira Batista, who served as Brazil’s representative to the IMF for eight years.
“When we see these things happening in Washington, we say, well we were right to start our own bank.”
Based in Shanghai, the New Development Bank was launched in 2015 by the “BRICS” countries — Brazil, Russia, India, China and South Africa — to upset the established order, pushing back against the underrepresentation of developing countries in the major international financial institutions.
During the economic crises of 2009-2011, Europeans and Americans, fatigued from economic storms, promised to cede more ground to China and India.
But these hopes were soon dashed despite long-delayed governance reforms at the IMF and the recent inclusion of China’s yuan currency in the IMF reserve assets basket.
“The BRICS would not have gone so far as to create their own development bank if they were fully satisfied with the existing institutions,” said Nogueira Batista.
The birth of the “BRICS bank” and of their own monetary fund marked a small revolution, according to Nogueira Batista. “It’s the first time that a development bank of global scope is established by emerging market countries alone with no participation of the industrialized countries,” he said.
China and its allies of course remain full-fledged members of the World Bank and IMF but expect “seek to build our own path.”
“If we make mistakes, we hope to make at least new mistakes, not the same old mistakes that the old institutions have made.”
The greater challenge will be to avoid the “politicization” of the bank.
“One of the problems of the Bretton Woods institutions is that they have been misused as vehicles of the bilateral agendas of their major members,” he said.
He pointed out that neither Russia nor Iran, which are at odds with Western powers, have access to World Bank financing.
To guarantee a political balance, none of the five founding member countries of the New Development Bank will hold the same veto power that is wielded by the Americans at the World Bank and IMF.
The new lender, which is approving its first projects this year and has an authorized capital of $100 billion (£78.4 billion), also wants to stand out from others by emphasizing cooperating with borrowing countries, according to Nogueira Batista.
The World Bank and IMF “often have a notion of what is required and they impose policies,” he said.
The new bank is still a minnow compared to the IMF and World Bank, with their 189 member states. And its success is far from being a foregone conclusion, as its own vice president concedes.
“It’s still an open question whether we will be successful because the goal is quite broad,” said Nogueira Batista. “Only time will tell.”
