In 1997 when the Asian Financial Crisis struck the Tiger economies, it was the West that pooled in funds and resuscitated the fledgling economies. 15 years later, its time to pay back this favour and loan.
The BRICS nations which met in the sunny coastal Mexican city of Los Cabos ahead of the G20 meet later this week announced they they would be setting up a foreign exchange reserve pool and a currency swap arrangement in order to bail the global economy from its doldrums. While China contributed US$43 billion to the IMF’s crisis-fighting reserves. While Brazil, Russia and India each said they contributed US$10billion towards the cause, South Africa offered US$2 billion. G20 host Mexico also contributed US$10 billion rounding off a global push to nearly double the Fund’s war chest to US$456 billion to help protect countries from fallout from the euro zone debt crisis.
The new funds which are being sanctioned only on the pretext that they will be used after the current funds have been depleted, are also being used by the BRICS nations as leverage to gain more controlling stake in the International Monetary Fund. “If the quotas are not commensurate with the relative economic weight of the different countries, then it has to be changed,” said He Jianxiong, director general of the international department of the People’s Bank of China. With a commensurate increasing in voting power as agreed in 2010, China will become the third largest voting member within the IMF.
Growth of the emerging countries, which has far outstripped that of the rich world in recent years, made it “only natural that the quotas should be shifted from developed economies to developing economies,” he told reporters.
According to Reuters, the five BRICS nations represent 43 percent of the world’s population and about 18 percent of global economic output. They have about US$4 trillion in combined reserves, with the lion’s share held by export powerhouse China.
The big emerging economies are also seeking more influence in the world economy by planning wider use of currencies other than the dollar and euro. The BRICS statement on Monday said the five leaders had “discussed swap arrangements among national currencies as well as reserve pooling.”
Swap arrangements, which allow nations’ central banks to lend to each other money to keep markets liquid, and the pooling of foreign-exchange reserves are contingency measures aimed
at containing crises such as the one roiling the eurozone, analysts said.
BRICS finance ministers and central bank governors were instructed to study the swaps and pooling arrangements and relevant internal legal issues and report to next year’s BRICS leaders’ summit in South Africa, the statement said.