The New BRICS Institutions as Contestable Multilateralism. - The New BRICS Institutions as Contestable Multilateralism. - Central Bank of Chile
The Series of Economic Policy Papers of the Central Bank of Chile presents views and analyses of the Chilean economy and the conduct of monetary policy prepared by Bank authorities. This series, aimed at the general public, disseminates and discusses topics that are relevant to the goals and operations of the Central Bank.
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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.