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ViewpointSeptember 24 2012

Europe's hold on economic institutions must be broken

Former Brazil president Luiz Inácio Lula da Silva says the rapid growth of emerging economies such as Brazil is changing the global economic order, but this reality is yet to be acknowledged by the world's major economic institutions, where Europeans hold a disproportionate amount of power.
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Europe's hold on economic institutions must be broken

Brazil is fast becoming a symbol of the new global economy. With a gross domestic product of $2500bn, it is already the world’s sixth largest economy, and by some estimates will overtake France by the end of 2012. Its ascent has been swift. Between 2003 and 2010, its economy more than quadrupled in size. The Latin American country has also emerged as an outspoken voice on the need for reform of the global political and economic system.

Following the sudden departure of Dominique Strauss-Kahn as the International Monetary Fund's managing director, Brazil and its BRIC (Brazil, Russia, India and China) peers were among those opposing continued European dominance in the top job at the lender. Similar pressure was exerted on the selection of the new World Bank president earlier in 2012, amid growing disaffection among emerging economies with what they view as an anachronistic international order.

Out of step

Former Brazilian president Luiz Inácio Lula da Silva, who led the country between 2003 and 2011, believes that the patterns of trade and politics which defined the 20th century are out of step with the fast-changing nature of global affairs.

“When I won the elections for the presidency and was inaugurated on January 25, 2003, I participated in the World Social Forum in Porto Alegre, Brazil and then travelled to Davos on the same day. I saw what was going on at the World Social Forum and followed what was going on in Davos.”

The contrast of the two experiences, one dedicated to alternative economic and social models, the other deeply rooted in mainstream globalisation, made it clear to Mr da Silva that 21st-century foreign policy would have to be more multi-faceted.

“I said to my foreign affairs minister that it was necessary to change the political geography and economic and trade geography that until then existed in Brazil. Everything went through the major superpowers and it was necessary to work to [involve] emerging countries in decision-making on trade, economic and social policies.”

Reflecting the growing push for reform of key bodies such as the UN and other international financial institutions, Mr da Silva says: “South-south co-operation obliges us, first of all, to improve the functioning of multilateral institutions, and then build new institutions that could allow more equity between all the participants.”

New order

Mr da Silva cites the UN as an example of the disconnect between major international decision-making bodies and changing realities on the ground. “Today, the world is quite different from the world that created the UN in 1948. Political correlation is different, but the UN continues to operate the same way it did in 1948.

“Africa is not represented on the Security Council, Latin America is not represented, and a country the size of India does not participate. What is the problem with having an additional five or six countries on the Security Council? Why does Europe have so many voices in all these institutions?”

Mr da Silva is outspoken in his criticism of what he sees as a clear double standard by rich countries in their dealings with developing countries. “With the bankruptcy of Lehman we had the breakdown of the theory that the markets could take care of everything,” he says, in reference to the neoliberal orthodoxy that had dominated international finance and economics since the early 1980s.

After a brief period of critical self-reflection among bodies such as the G-20 in the wake of the financial crisis, he argues, rich countries are now returning to “business as usual”.

“The financial sector was not punished. We discovered that the IMF only had a tough voice for the poor countries to follow their policies. In the crisis of the rich countries nothing was said.”

While not a proponent of free market economics, Mr da Silva’s approach has an overarching pragmatism. “We don’t want to withdraw anything from anybody, but we want to establish rules. Rules that guarantee our independence and free us from the need to rely on third parties to conduct our business. I believe that multilateral institutions need to change, but as long as they don’t change we have to develop other institutions.

“We cannot accept that a part of the world will be rich and another part was born to be poor.”

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Read more about:  Analysis & opinion , Americas , Brazil , Viewpoint