Emerging Economies: Finding a Balance Locally as well as Globally

Posted by / 18th November 2013 / Categories: Opinion / Tags: , , , / -

Economic growth of so-called emerging countries has not always brought about the desirable and necessary development and strengthening of social and civil rights, nor the consolidation of their democratic systems. Alongside this, the reluctance of some Western countries in view of the increasing number of competing economic high-performers in the international arena has hindered their efforts in the path of human development. High economic growth of emerging countries has been achieved by a combination of cheap labor with easy access to credit, resulting in lower production costs, a dramatic increase in foreign demand for their industrial products and commodities and the expansion of their domestic markets. The other side of the coin is the challenges that are still pending: a proper separation of powers, the protection of minorities, a greater respect for social rights and a better distribution of wealth. The wealth of a country goes far beyond economic growth.

Emerging countries have been labeled in a number of ways, ranging from BRIC and CIVETS to EAGLES. Within the first group there is China, the indisputable leader of all charts, a giant whose power has become a model for many, not only economically but also politically. It also contains Brazil, an dynamic and quickly growing economy still marred by significant social and economic inequalities. The second group, lagging far behind the first, is a heterogeneous and troubled group that includes Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. Within this framework we find some strengths and weaknesses related to economic and social development: since the new round of peace talks in Colombia, the “narco” wars seen to have subsided; Indonesia and Vietnam keep growing in the shadow of China, well integrated into global production chains; and yet the military coup in Egypt or the tense climate of social conflict in southeastern Turkey remind us that economic indexes seldom reflect the wealth and well-being of a country.

The social inequality that can be found in these countries has an interesting parallel with the inequality among nations at an international level. Unequal power sharing between rich and poor is also on full display when it comes to global arrangements. Regardless of the relative power of each of those countries, all of the emerging economies have high hopes of increasing their presence in international decision-making bodies such as the G-20. And this is precisely where a controversy has arisen after the US refused to accept the new rules to ensure a balance between Western and emerging countries, which has forced the International Monetary Fund President Christine Lagarde to urge “countries to fulfill their commitment to expeditiously implement this reform.”

This reform adopted and approved by the G -20 directly affects the composition and functioning of the Bretton Woods institutions. In the case of the IMF, new financial lines have been created and its resources have increased, but with greater supervisory powers. But most importantly, the reform introduces changes in the IMF’s governance, aiming to increase the legitimacy of the institution by adapting the voting system, taking into account the actual economic weight of each country, which benefits the emerging economies that have grown considerably in recent years. As for the World Bank, the changes were inspired by the “Zedillo Report” and are generally in line with the IMF’s: more resources and new financing and an important economic governance reform with greater representation for the Emerging Countries and Least Developed Countries. Overall, developing countries have increased by 50% their basic votes in this institution. Another sign of change is that the Executive Board has reserved a seat for the first time in history for a sub-Saharan African country. However, other urgent measures have not even been pinpointed yet, such as improving and strengthening the monitoring mechanisms to forecast financial crisis, or appointing citizens of countries other than European ones (IMF) or the US (World Bank; Jim Yong Kim is Korean-born American after all) for the top positions of these institutions. Consequently, while on paper the recent support measures have been applauded by the emerging powers, in practice there is still a long way to go in recognizing their political legitimacy.

Two news items found on 22nd October in the media serve to illustrate the situation. The first, published by financial newspaper Expansion CNN, reads that “despite the rapid growth of developing economies in the last decade, advanced economies still dominate the lists of the largest corporations in the world, representing 75% of companies of the Fortune Global 500 this year, and totaling 91% if we exclude state-owned enterprises”. Meanwhile, on that same day Russian Prime Minister Dmitry Medvedev declared in Beijing –as to add extra symbolism to his words- that: “If China, India, Brazil, South Africa and Russia cannot contribute to the stable development of the world economy, nothing will “.

Emerging countries are close to completing the conversion of their economic systems, but have yet to take a final step to solve domestic problems of capital importance such as the full recognition of basic rights and a fairer distribution of wealth. Meanwhile, the West provides them with the tools to participate in international trade, complying with the norms of liberal trade theory, but hypocritically keeps impeding- if not denying their right- to access decision-making positions that match their economic size. This is why further reforms undertaken in the G -20 should take the first step to fulfill two objectives: promoting structural reforms within emerging economies and finding a better balance between their economic weight and their political representation at an international level. Only this will ensure sustainable growth among both local populations and the global community.  facebooktwittergoogle_plusredditpinterestlinkedinmail

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About the author
Ricardo Lenoir is a guest author. He specialises in international security and local context analysis. He currently works for International SOS.

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