Tags: El-Erian | World Bank | IMF | Ukraine

El-Erian: World Bank, IMF Must Be Reformed to Avert Global Flare-Ups

By    |   Monday, 18 August 2014 11:32 AM

Refusal to reform the World Bank and IMF make the world a more dangerous place, says Mohamed El-Erian, chief economic adviser at Allianz, in an article for Project Syndicate.

The weakening political support for these institutions is undermining efforts for countries to co-operate on policy, leading to flare-ups like those seen in Iraq and Ukraine, he says.

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Western Europe and the U.S. are unwilling to change the appointment system that hands their citizens top IMF and World Bank leadership posts. The system packs the IMF with Western Europeans and offers emerging countries little influence, despite their rising economic importance.

"And, during the eurozone's debt crisis," El-Erian says, "European leaders showed little hesitation in bullying the IMF into flouting its own lending rules."

Don't expect emerging nations to support institutions that offer unfair advantages to others, warns El-Erian, former CEO and co-chief investment officer of Pimco. Instead, expect them to work together strive evade and thwart the World Bank and IMF.

And that's already happening.

Frustrated with the uneven treatment, the so-called "BRICS" countries Brazil, Russia, India, China, and South Africa recently beefed up a currency-reserve pool to help improve short-term liquidity and established their own development bank. The action, El-Erian asserts, is a direct challenge to the IMF and the World Bank.

Another challenge to the current global monetary order is the growing number of bilateral payment agreements, he says. "By bypassing more efficient and inclusive structures, these arrangements undermine multilateralism."

Russian Deputy Foreign Minister Sergei Ryabkov accused the U.S. of blocking IMF reforms that the Group of 20 nations has already agreed on. She spoke in an interview with the Rossiya Segodnya International Information Agency.

Those reforms include giving developing countries more power in the IMF.

The New Development Bank, or BRICS Development Bank, and a reserve currency pool could help stabilize financial projects in those countries, but the bank is not designed to be an IMF competitor, Ryabkov says.

The BRICS need to decrease their dependence on the World Bank and the IMF and on payment systems such as Visa and MasterCard, especially in Russia, she said.

Visa and MasterCard had threatened to block Russian users as part of Western economic sanctions against Moscow.

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Refusal to reform the World Bank and IMF make the world a more dangerous place, says Mohamed El-Erian, chief economic adviser at Allianz, in an article for Project Syndicate.
El-Erian, World Bank, IMF, Ukraine
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2014-32-18
Monday, 18 August 2014 11:32 AM
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