Description

Due to the existence of externalities in the supply of international financing for balance of payment support and development, there are good arguments to justify the presence of multilateral institutions that coordinate this provision. However, imperfections in the specific design of these institutions, for instance through rent appropriation and the imposition of excessive conditionality to incentivize the participation of creditor countries (traditionally advanced economies), hinder the achievement of the social optimum. The significant economic expansion of emerging markets has made this process of rent appropriation “contestable” (in the terminology of Baumol), and therefore it is possible that the supply of multilateral financing will approach further the social optimum. It is from this perspective that the appearance of the new BRICS institutions, such as the Contingent Reserve Arrangement, can be understood.