Sign up | Log in



Home  >>  Daily News  >>  ASEAN ANALYSIS


Asean Affairs   8 August, 2014

The Right Order

By Matthew P. Goodman

Brazil, Russia, India, China, and South Africa have thrown down the gauntlet at the feet of the West. Last month these five emerging economies launched a New Development Bank—nicknamed the “BRICS Bank”—that combines features of the World Bank and International Monetary Fund (IMF). Meanwhile, China has proposed an Asian Infrastructure Investment Bank (AIIB) that could compete with the Asian Development Bank (ADB). These initiatives represent the first serious institutional challenge to the global economic order established at Bretton Woods 70 years ago this summer. The psychology behind them is clear, as advanced countries have damaged their own credibility as responsible economic stakeholders in recent years and have failed to fully accommodate the rise of the new powers. Less clear is how much of a substantive improvement these new institutions will make to global governance—or even to the interests of the countries championing them.

At first blush, it is difficult to take the new BRICS Bank seriously. The five founding members were brought together by little more than a clever acronym and a shared desire to send a message to the West. The differences among the five in economic heft, political orientation, and geostrategic interests are cavernous. Moreover, the initial paid-in capital of only $10 billion is a mere drop in the bucket compared to the development challenges the bank is intended to address.

But the BRICS Bank reflects a real grievance on the part of the emerging world about the state of global economic governance, including the recurring financial crises emanating from the United States and Europe in recent years and the failure of advanced countries to reallocate “shares and chairs” to emerging economies in existing institutions such as the IMF. Moreover, if managed well, the BRICS Bank could make a useful contribution to global development. Yet it could also undermine the global rules-based system that has largely served the economic interests of the BRICS well over the past seven decades.

When representatives of 44 allied nations, mostly from North America and Europe, assembled in New Hampshire in July 1944, they had three principal goals in mind. First and foremost was to construct a rules-based international economic architecture that would help prevent a recurrence of the chaos and devastation of the previous 30 years. Second was to rebuild the war-torn economies of Europe and Asia and lay a foundation for long-term global prosperity. To meet these first two objectives, the delegates at Bretton Woods created the IMF to promote macroeconomic cooperation and discourage beggar-thy-neighbor currency policies, the World Bank to oversee reconstruction and development, and the building blocks of what later became the World Trade Organization to discipline global trade. The North Atlantic powers then met their third objective—preserving their leadership in global affairs—by tilting governance of these institutions in their favor.

Arguably, both the BRICS Bank and China’s AIIB proposal have been motivated by three similar objectives—only in reverse order. More than anything, the founding members want to establish themselves as leaders in global affairs; they want to sit in the big chair at the head of the table and hold the gavel. Second, they seek to promote economic opportunity, though with a distinctly mercantilist bent favoring their own commercial interests. Making a positive contribution to the global rules-based order is a tertiary consideration at best.

To be sure, the willingness of the BRICS to invest in infrastructure and sustainable development is welcome. The World Bank estimates infrastructure needs in developing countries of around $1 trillion per annum through 2020. If China and other successful emerging economies can share their development experience and capacity with poorer nations, this would add to global welfare.

But are new institutions—especially ones that raise a number of serious governance and operational questions—really needed to meet these ends? The founding members of the BRICS Bank say they intend to share voting power equally within the existing group and to yield shares to new members as they join. Yet unless the BRICS Bank is going to remain a limited experiment, will South Africa really be able to sustain an equal financial contribution with China? If not, will Beijing continue to be willing to give Pretoria an equal voice in running the institution? And what happens when the combined share of the five founding countries hits the declared floor of 55 percent; will they then stop accepting new members, or will the shares of other existing members be diluted?

Operationally, will the BRICS Bank be able to attract top-tier staff to Shanghai? On what terms will the bank lend? Will there be sound financial, transparency, environmental, and other conditions akin to those applied by multilateral banks such as the World Bank and ADB? Will lending be tied to procurement of goods and services from founding-member companies, or will bidding be open to all?

Similar governance and operational questions surround China’s AIIB proposal. Indeed, Beijing should be taking an especially hard look at the costs and benefits of these new institutional arrangements. For all the understandable complaints about the existing order, that order has served China’s interests well over the past several decades. It has provided open, growing markets for Chinese exports; access to capital, resources, and technology; and discipline as China has forged ahead with its own domestic economic reforms. Some day in the future when Beijing is sitting in the big chair with the gavel, it may rue the day when it agreed to underwrite expensive new institutions with weak governance and lending structures.

Meanwhile, the BRICS Bank is a wake-up call to the advanced countries of North America, Europe, and East Asia. They should strengthen their own economic management to avoid recurring financial and fiscal crises and do more to share power in the Bretton Woods institutions—notably by persuading the U.S. Congress to enact the IMF quota reforms that the Obama administration championed in 2010. Having made a real concession by embracing the G-20, which includes the BRICS as equal members, as the “premier forum for our international economic cooperation,” Western powers should work harder to restore the G-20’s effectiveness and credibility. But at the same time, advanced countries should remind the BRICS that the existing rules-based multilateral order has served them all well in substantive terms and is worth preserving and building upon.

Matthew P. Goodman holds the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C.

Courtesy: This post originally appeared on the Center for Strategic and International Studies, Washington D.C. cogitASIA blog

Reach Southeast Asia!
10- Nations, 560- Million Consumers
And $1 -Trillion Market
We are the Voice of Southeast Asia Media Kit
The only Media Dedicated to Southeast Asia Advertising Rates for Magazine
Online Ad Rates

Comment on this Article. Send them to

Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below




1.  Verifier

1. Verifier

For security purposes, we ask that you enter the security code that is shown in the graphic. Please enter the code exactly as it is shown in the graphic.
Your Code
Enter Code

Today's  Stories                            August 8, 2014 Subsribe Now !
• Thai bourse welcomes property developer Richy Place Subcribe: Asean Affairs Global Magazine
• Philippines' Jollibee Foods plans to enter Indonesia, Malaysia
• 48 Thais arrive in Tunisia, awaiting next plane to Thailand
Research Reports
on Thailand 2007-2008

• Textiles and Garments Industry
• Coffee industry
• Leather and footwear industry
• Shrimp industry

• Singapore Red Cross commits S$62,400 to relief operations for Yunnan earthquake
• Loans across banking industry jump to $9.5 billion
Asean Analysis                    August 8,, 2014

• Asean Analysis August 8, 2014
The Right Order
Advertise Your Brand

Asean Stock Watch    August  7, 2014
• Asean Stock Watch-August 7, 2014
The Biweekly Update
• The Biweekly Update  July 25, 2014

ASEAN NEWS UPDATES      Updated: 04 January 2011

 • Women Shariah scholars see gender gap closing
• Bank Indonesia may hold key rate as inflation hits 7 percent
• Bursa Malaysia to revamp business rules
• Private property prices hit new high in Singapore • Bangkok moves on mass transport
• Thai retailers are upbeat
• Rice exports likely to decline • Vietnamese PM projects 10-year socioeconomic plan


This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More


Home | About Us | Contact Us | Special Feature | Features | News | Magazine | Events | TV | Press Release | Advertise With us

Our Products | Work with us | Terms of Use | Site Map | Privacy Policy | Refund Policy | Shipping/Delivery Policy | DISCLAIMER |

Version 5.0
Copyright © 2007-2015 TIME INTERNATIONAL MANAGEMENT ENTERPRISES CO., LTD. All rights reserved.
Bangkok, Thailand