NEW YORK – In their preoccupation with fiscal deficits, developed-country policymakers continue to neglect a different, yet equally critical, shortfall: the trust deficit between advanced and emerging economies when it comes to global governance.
For decades, developed-country shareholders at the International Monetary Fund and the World Bank used loan conditionality to spur economic reforms – often including contentious fiscal-austerity measures – in the so-called Third World. Through pragmatic, sustained reform efforts, countries like Brazil, China, and India turned their economies around to achieve stunning increases in GDP growth – from an average annual rate of 3.5% in 1980-1994 to 5.5% since then.
But, although developing countries now account for more than half of global GDP growth, advanced countries have yet to admit them to leadership roles that reflect their growing influence in the world economy.
The failure so far of the US Congress to ratify the IMF reform package agreed to by G-20 finance ministers and central-bank governors in 2010 is the latest breach of trust – one that makes the promise of adequate representation for emerging economies seem like a shell game. America’s unwillingness or inability to ratify the package – which includes doubling the IMF’s funding quota and shifting 6% of the new total, together with two directorships, to developing countries – undoubtedly contributed to the decision by the BRICS (Brazil, Russia, India, China, and South Africa) to establish their own development bank.