The International Monetary Fund (IMF) has realised the strength of BRICS – an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.
In 2014-15, BRICS sent a strong message to the IMF by establishing the New Development Bank (NDB). The reason for the establishment of the Bank was to create an alternative to the existing American and European-dominated World Bank (WB) and IMF. With the NDB emerging as an alternative to the West-controlled global lenders, the IMF plans to join hands with the five emerging economies for the sake of its survival.
As the long-pending IMF reforms came into effect last Wednesday (January 27), Brazil, Russia, India and China gained more influence in the governance architecture of the Fund. While India’s voting rights increased to 2.6% from the current 2.3%, China’s voting rights jumped to 6% from 3.8% as per the new division. Russia and Brazil, too, gained from the reforms.
The IMF said in a statement that it decided to shift more than 6% of the quota shares from the US and European countries to emerging and developing nations. According to the Fund, there will be a two-fold increase in the combined quotas (or the capital contributed by countries) from about USD 329 billion to about USD 659 billion because of the move. IMF Managing Director Christine Lagarde is of the opinion that the significant resource enhancement would certainly bolster the Fund’s ability to respond to crises more effectively. “These reforms will reinforce the credibility, effectiveness, and legitimacy of the IMF,” she said.
Although IMF reforms had been agreed upon by 188 members of the Fund in 2010, the US Congress took six years to approve the changes. It is a fact that America’s voting share will drop from 16.7% to 16.5% due to the new division, but Washington will enjoy a veto power. Meanwhile, Lagarde welcomed the US’ move, stressing: “I commend our members for ratifying these truly historic reforms. A more representative, modern IMF will ensure that the institution is able to better meet the needs of its members in a rapidly changing global environment.”
India and Brazil also welcomed the IMF’s announcement, as the reforms would help the two BRICS members secure their places in the list of the top 10 IMF members. Their inclusion in the list means Canada and Saudi Arabia slip below the top 10. Other countries in the list are the US, Japan, France, Germany, Italy, the UK, China and Russia.