In Fortaleza, Brazil, on Tuesday, the other shoe dropped in terms of the effect of U.S. decline on the international economic order as the BRICS nations — Brazil, Russia, India, China and South Africa — created The New Development Bank to rival the World Bank and International Monetary Fund, dominated by the United States and Western Europe for the past 70 years.
The new institution, whose five countries include about half the world’s population, will start with $50 billion in capital and a $100 billion reserve fund, designed to buffer member nations against turbulence in the world market. They have divided authority in the institution among them. China, the largest economy, will have the headquarters in Shanghai. India will name the first president. Brazil will choose the first chairman of the board of directors. Russia will select the head of the central bank governors council, and South Africa will host the first regional office.
By contrast, the United States always names the president of the International Bank for Reconstruction and Development, or World Bank, and the Western Europeans choose the president of the International Monetary Fund. American governments have put as head of the World Bank people like former Secretary of Defense Robert S. McNamara, key architect of the Vietnam War, and former Deputy Secretary of Defense Paul D. Wolfowitz, a designer of the Iraq War who was forced to resign from the bank in a personnel scandal.
The BRlCS countries decided to unhitch themselves from the World Bank and the IMF for a number of reasons. Their primary reason was resentment of their own underrepresentation in these two institutions, even as they grew in importance on the world stage. Their average growth rate in 2013 was 3.7 percent; the average growth rate of the United States and the European Union was 1 percent.
The second reason was probably nervousness on their part at the weakening economic and political state of the United States. Fun and games on Wall Street and in the mortgage sector of the U.S. economy started the current world recession in 2008 and recovery continues to be slow. Relations among the executive, legislative and judicial sectors of the American government are currently such that paralysis prevails — not the sort of government that any rational person wants to see if America is to continue to play an economic leadership role in the world, including in the World Bank and IMF. The rest of the world’s economic leadership is also made uncomfortable by the current administration’s tendency to resort to economic sanctions as its tool of choice in diplomacy.
For the United States, the creation of the new BRICS bank means a clear diminution of its global influence. For the rest of the world, particularly the important BRICS countries, it probably makes good sense. For Americans it should also constitute a wake-up call: rats leaving a listing, if not sinking, ship.