The International Financial Cooperation Of The BRICS And Their Financial Institutions

This dissertation studies the international financial cooperation of emerging markets,particularly the initiative of the BRICS and their recently established financial institutions like the New Development Bank(NDB)and Contingent Reserve Arrangement(CRA).This work starts by examining the necessity for alternative international financial institutions(IFI)due to two sources of illegitimacy.One source of illegitimacy stems from the conditionality of the current IFI's,this part of the study examines the detrimental roles of the leading IFI's in the Latin American and the Asian Financial Crisis through a historical analysis.The other major source of discontent is the unequitable representation and distribution of voting power of emerging market countries at the current financial system.This part of the dissertation analyzes the way major stakeholders at the IMF use informal governance to block key reforms that could rebalance the participation of emerging market countries.To link both issues of conditionality and informal governance,this dissertation performs an econometric analysis based on Dreher,Strum and Vreeland's insight(2009)that shows that there is a systematic pattern in vote trading at the United Nations Security Council(UNSC)among temporary members of the UNSC,the US and the IMF.This econometric study concludes that there is a systematic vote buying scheme,where countries who are temporary members of the UNSC tend to participate more in IMF arrangements with less conditions on their loans if they vote along the US,despite the fact that some temporary UNSC members do not meet the economic criteria for IMF arrangements.With the background information defined,this dissertation analyses the BRICS configuration through the use of International Relations theory(IR.)in order to find the possibility and opportunity of international financial cooperation among the BRICS.According to IR theory,nation states can cooperate towards a common goal despite having multidimensional differences.This thesis argues that the BRICS greatest common interest is in the funding of infrastructure and sustainable projects in emerging markets and developing countries through the establishment of international financial institutions with emerging market characteristics.Once the possibility and opportunity of financial cooperation are determined,this study examines the various challenges that the BRICS might encounter in the realization of their financial cooperation.These challenges could be external in the case of.the BRICS or institutional in the case of NDB and CRA,some challenges are both external and institutional.One of the challenges are the economic factors that might impinge the participation of the BRICS members in funding or managing the NDB,one of these economic obstacles is the slower growth that all the BRICS are experiencing,as well as the particular macroeconomic complication each BRICS member is experiencing.Another common challenge is the issue of the BRICS representation at the current financial institutions,this part of the thesis explains the complicated procedure and coordination that the BRICS need to overcome in order to achieve the reform that would allow emerging markets and developing countries to increase their voting power.The various scenarios for reforming voting distribution at the IMF is also analyzed.This allows the BRICS to suggest the various reform scenarios that will improve the representation of emerging and developing countries.Another consideration for the BRICS financial cooperation is the issue of surveillance.Surveillance for financial institutions is an important activity that informs the lending institution of the borrowing country's economic activity and policies.However,surveillance is also criticized as an extension of the much maligned conditionality,not only because it is a condition in obtaining IMF arrangements,but also because it creates benchmarks for borrowing countries to receive upcoming disbursements.Surveillance also creates a stranglehold for the "rule making" countries because other international lending institutions require borrowing countries to participate with an IMF surveillance program as a requirement for debt restructure.Therefore,the surveillance issue is left for the BRICS to decide as their operations evolve.This work suggest that surveillance be conducted multilaterally,which is more of a consultative platform,and evolve into bilateral surveillance as the relationship of the NDB and its future borrowing members improve.This dissertation also discusses the cultural challenges that the BRICS financial institutions might face during their financial cooperation,particularly in the execution of international projects.This dissertation uses Hofstede's(2000)model of cultural differences to highlight the important cultural traits that cause the most tension and could become "deal breakers" during negotiations.A chart and index is created in this section to show how the BRICS perceive cultural differences.Finally,a case study of the IMF's attempt to diversify its staff is depicted.This section serves to highlight valuable lessons regarding the diversity or lack of diversity at the IMF,more importantly this section shows how the IMF staff became monolithic and opens the discussion for NDB's permanent staff to be either diversified or uniform.Strengthening the NDB as an institution is also a topic studied in this dissertation.A good governance test is performed on the NDB's Articles of Agreement based on Ngaire Woods(1999)good governance framework.This study finds that the Articles "weakly" passed the good governance test as they stand now,however as more country members join the NDB,more reforms will be required in order to follow the good governance framework.This section of the dissertation also performs a financial analysis on the NDB's operations by focusing on the lending scope of the financial projects.It also performs a financial forecast of the initial funds if they are invested conservatively.The growth results are promising for the NDB as its operations might outsize the World Bank's in about a decade.Finally,the role of China in the BRICS financial cooperation is also examined in this study.Using IR theory again,this section explains the motivation of China in the BRICS configuration and its financial cooperation.This chapter finds that China's soft power,as defined by Nye(1990),could be both a contribution and a constraint to leading and organizing the BRICS financial institutions.One of the concluding remarks in this dissertation is that the BRICS financial institutions are necessary for the economic development of the Global South.Alternate financial institutions are better than no institutions,even if there is vote trading or backdoor negotiations occurring at many global organizations.However,this author believes that the process of establishing better international financial institutions is perfectible.Cooperation requires sacrifice,the emerging markets countries sacrifice their resources and the borrowing countries will probably sacrifice sovereignty,yet this occurs only if all parties involved are willing and perceive a winning scenario.Creating more accessibility to financial resources and international participation should be the main objectives of international financial institutions.This dissertation shows that the quest for the BRICS financial institutions to reshape the landscape of the current international financial system is hopeful and promising.