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One group of financiers seems to be doing nicely out of the global recession: the International Monetary Fund and other International Financial Institutions (IFIs) are enjoying a return to relevance and lining up for increased funding. But the issues at stake here go beyond the IFIs’ own agendas. On the one hand, their revival implies a reassertion of U.S. and global North dominance. They aren’t called "Washington–based" just as a matter of real estate: the United States has a 17% voting share on the IMF and World Bank, enough to give it a veto on some major changes; Europe and the United States control the top management positions. On the other hand, the story underscores how parts of the global South are gaining in economic power.

In Latin America and elsewhere, the IMF may be re–emerging—but in a changed landscape.

The London G20 Summit in April was the IMF’s big comeback gig. In 2007 the fund’s loan book was down to just $20 billion; now its capital is set to triple to $750 billion, plus permission to issue $250 billion in “special drawing rights” (the fund’s quasi–currency which allows member countries to borrow from each others’ reserves). Since September 2008 a range of East European and ex–Soviet states have taken out new loans. So too have Pakistan, El Salvador, and Iceland—the fund’s first Western European client since Britain in 1976.

The World Bank and regional development banks are also getting in on the party. In Latin America, the World Bank’s regional vice president Pamela Cox says she expects lending to triple in 2009 to $14 billion. The Inter–American Development Bank (IDB), the most active IFI in the region, expects to lend $18 billion—its typical loan portfolio is under $8 billion. And the development banks are queuing up behind the IMF with their caps out for capital increases: the Asian Development Bank wants to triple its capital to $165 billion; the IDB is asking for an extra $50 to $80 billion on top of its current $101 billion.

Why now? The IFIs, says Vince McElhinny of the Bank Information Center, a group that monitors them, are opportunists at heart. Just like any private bank or corporation they fight for market share, and as the world economy and global capital markets grow they need to increase their lending apace or lose relevance. The freezing of world capital markets, particularly severe in emerging markets, has created a need which they can seize as opportunity. The Institute of International Finance predicts private net capital flows to emerging markets of $141 billion in 2009, down from $392 billion in 2008, after a record $890 billion in 2007. The IFIs see themselves helping to fill this gap.

But the issues at stake here go beyond the IFIs’ own agendas. On the one hand, their revival implies a reassertion of U.S. and global North dominance. They aren’t called "Washington–based" just as a matter of real estate: the United States has a 17% voting share on the IMF and World Bank, enough to give it a veto on some major changes; Europe and the United States control the top management positions.

On the other hand, the story underscores how parts of the global South are gaining in economic power. In the crises of the 1990s, or so the neoliberal story went, the IMF stepped in to clean up the messes made when fragile Third World economies exploded. This time around things are very different: the mess is in the North, and the likelihood is that the emerging economies of Asia and Latin America will emerge from it stronger and more independent. (It’s important to note, though, that large areas in the South, notably Africa, are not part of this story—nor is Eastern Europe.) The so–called BRIC nations in particular (Brazil, Russia, India, China) are getting the bargaining power to back up their claims on the global financial system. Will these claims be met within the existing institutions, or by creating a new financial architecture that bypasses Washington altogether? The future of the IFIs is a key arena in which global rebalancing of economic power is playing out.

New Financial Architecture?

In May 2007 finance ministers from Brazil, Argentina, Venezuela, Bolivia, and Ecuador signed the "Quito declaration" in the Ecuadorian capital. The plan includes a regional monetary fund and moves toward a South American single currency, but the first step is the creation of the Banco del Sur, a new regional development bank. While the bank’s launch is behind schedule, this March its constitution was agreed to, with an initial capitalization of $7 billion. Besides the original five, Paraguay and Uruguay are also members. (Even Colombia had announced its support before its late–2007 row with Venezuela over hostages.)

The aim of Banco del Sur is to replace the Washington–based lenders altogether with institutions run by and for South America. Maria Jose Romero, who researches the IFIs at the Third World Institute in Montevideo, encapsulates this spirit. "In responding to the crisis Latin American countries have two options," she says. "We can return to the old institutions and the failed recipes of the 1990s, or we can move forward with alternatives."

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