Failure to reform western bureaucrats’ “mindset” to reflect a multipolar world will derail efforts to reform global economic governance, South Africa’s finance chief has claimed.
The head of the South African delegation at the annual meetings, Pravin Gordhan, said IMF and World Bank bureaucrats are still failing to reflect the views and priorities of poor countries.
“The bureaucrats need to demonstrate that they are developing new mindsets or a new consensus” to reflect the growing power of emerging markets, he said in an interview in Istanbul yesterday.
He said the meetings were far too focused on the US-China relationship, while reports published by the IMF and World Bank are excessively focused on cyclical trends that do not incorporate structural shifts in power.
He urged the institutions: “Don’t leave out that [poorest] 10% of the world. Inclusivity [of countries] today is as important as [reflecting global economic] balance.”
He argued that the crisis had shown that it is in the self-interest of rich nations to consider how to grow the economies of developing countries that presently comprise a small share of the international whole.
“It is now consensus that demand in the global economy is not going to come in from old sources [Western markets], new demand has to come from new sources.”
Gordhan’s comments found some support from Jim O’Neil, chief economist at Goldman Sachs, who told Emerging Markets in Istanbul on Sunday: “We have given the emerging markets world more importance but when you listen to the discussions here at the annual meetings you would not have realized this.” He added: “The bureaucrats are particularly guilty of being backward looking.”
Gordhan’s claims come as his predecessor Trevor Manuel, in a recent interview with Emerging Markets, denounced the IMF’s 24-member executive board for obstructing reform of the institution that would boost the representation of developing countries.
However, South Africa’s power in prosecuting the role of emerging markets in global economic governance is limited to the small size of its economy, said analysts.“South Africa is just too small really... so they are not that important, unfortunately,” said O’Neil.
He believes that South Africa “probably punches above its weight on the global stage... since it is really Nigeria that will become the important country in Africa” due to its larger population and energy wealth.
South Africa has a structural current account deficit, and so can not serve as a net exporter of capital for Western markets. Africa as a whole holds just 1.3% of world stock market capitalization, 0.2% of debt securities and 0.8% of bank assets, according to the World Bank.
Jacko Maree, CEO of Standard Bank, told Emerging Markets in a recent interview: “I don’t think the centre of gravity has shifted away from the developed world to the developing world in our region because the [economic] numbers speak for themselves.”
In other comments, Gordhan said he would announce a medium-term fiscal framework that “put a clear plan on how to decrease the deficit”, clarify debt borrowing plans and find ways to improve “the quality of fiscal spending”.