Rise of Asian Infrastructure Investment Bank and New Development Bank reinforces need for World Bank/IMF reform

The Obama administration made a bid in 2010 for quota reform in the IMF with more voting share for developing nations, but it was foiled by the US Congress. At the Lima meeting, US Treasury Secretary Jack Lew called upon the US Congress to approve the quota reforms. The Bretton Woods institutions were devised when countries like China or India were ravaged by years of war and colonialism. The rise of these emerging economies has changed the state of play.

India, too, is also strongly supportive of reforms. In Lima, its finance minister Arun Jaitley pledged to press for reforms in the Bretton Woods.

Instead of driving a wedge between the older international order and the emerging economies, the Asian Infrastructure Investment Bank and the New Development Bank have opened up an opportunity for creating convergence. While the US has now wised up to accept the former's presence, China has pledged to increase its contribution to the Bretton Woods institutions.

The formation of new banks does not obviate but reinforces the need for reform. The Bretton Woods institutions can benefit from a larger role of emerging economies. The proposed quota reform in the IMF will result, for example, in more financial contribution by emerging economies, boosting the fund's ability to play a more effective role in the global economy. As the crisis-riddled advanced economies are not inclined to boost the size of capital of multilateral development banks, higher contribution from emerging economies can be a welcome addition.

Besides jumpstarting the reform process, the two sets of banks - old ones and newcomers - have opportunities to harness cooperation for mutual advantage.

One of the key planks of the organisational reform strategy of World Bank president Jim Yong Kim has been to cut the operational expenses, including retrenching staff.