BRICS’ new financial institutions could undermine US-EU global dominance

"During the 1997–98 Asian financial crisis, when middle-income countries were hard hit by big capital outflows, there was an effort by China, Japan, Taiwan and other countries to put together an Asian Monetary Fund to offer balance of payments support. Washington vetoed the idea, insisting that all assistance had to go through the International Monetary Fund. The result was a mess, including an unnecessarily deep regional recession, as the IMF failed to act as a lender of last resort and then attached all kinds of harmful and unnecessary conditions to its lending.

But the world has changed a lot in the past 15 years. Last week the BRICS countries (Brazil, Russia, India, China and South Africa) decided to form the Contingent Reserve Arrangement (CRA) and the New Development Bank (NDB), and the United States will not have a veto this time. These new institutions could mark a turning point for the international financial system."

http://america.aljazeera.com/opinions/2014/7/brics-developmentbankimffinance.html

[IMF] Redistribution, Inequality, and Growth

"Economists are increasingly focusing on the links between rising inequality and the fragility of growth. Narratives include the relationship between inequality, leverage and the financial cycle, which sowed the seeds for crisis; and the role of political-economy factors (especially the influence of the rich) in allowing financial excess to balloon ahead of the crisis. In earlier work, we documented a multi-decade cross-country relationship between inequality and the fragility of economic growth. Our work built on the tentative consensus in the literature that inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required to adjust in the face of shocks, and thus that it tends to reduce the pace and durability of growth."

"Our main findings are:

First, more unequal societies tend to redistribute more. It is thus important in understanding the growth-inequality relationship to distinguish between market and net inequality.

Second, lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution. These results are highly supportive of our earlier work.

And third, redistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth."

http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf