This Econographic is part of our Next Gen Fellowship which aims to cultivate a new generation of young economists to rethink the pillars of economic global governance. These undergraduate Fellows researched governance of the international financial system with the Bretton Woods 2.0 Project in Summer 2023. 

Nearing the first year of his latest term, Brazilian president Lula da Silva has solidified an eyebrow-raising foreign policy meant to restore Brazil’s standing on the world stage. Whether it be his refusal to arm Ukraine against Russia, efforts to normalize relations with Venezuela’s Nicolás Maduro, or the decision to authorize the docking of Iranian naval ships, Lula has signaled a willingness to break convention in pursuit of “the creation of a multipolar world”—a far cry from the isolationist approach of his predecessor, Jair Bolsonaro. However, as much friction as these one-off encounters have generated, the brunt of Brazil’s current strategy lies in its empowered relationship with China and economic initiatives across Latin America. Combined, these factors have the potential to not only cement Brazil as a powerbroker in the region but also to upend the role of Bretton Woods Institutions (BWIs) when international polarization is at an all-time high. If BWIs fail to adapt to this changing landscape, they risk diminishing relevance and influence, paving the way for alternative financial institutions to dominate the global economy.

Since outpacing the United States as Brazil’s largest trading partner in 2009, China has invested more than $36 billion towards projects related to the country’s infrastructure, utilities, and natural resources. These investments transformed Brazil into a cornerstone of China’s engagement with Latin America—all while the momentum surrounding BRICS affirmed the country’s influence over the global economy. Even as Bolsonaro’s presidency chilled Brazil’s diplomatic ties, Chinese investments totaled $20 billion over the span of his administration. Although the United States has maintained a dominant financial presence in Brazil, with annual investment inflows surpassing $60 billion for the past decade, the acceleration of China’s investment signifies a strategic evolution in a bilateral relationship once defined by trade alone.

Lula made this evolution clear during his long-anticipated trip to Beijing this April, signing agreements with President Xi Jinping to bolster bilateral efforts in trade, innovation, and social development. Specifically, the state visit culminated in commitments to promote mutual investments in infrastructure, energy, and agriculture, to facilitate scientific and technological exchanges, and to deepen collaboration in the digital economy. On the heels of renewed negotiations over a free trade agreement between Brazilian-backed Mercosur, the South American trading bloc, and the European Union, Xi expressed interest in engaging with the bloc to deepen China’s ties with the rest of Latin America.

The most consequential moment of the visit came when Lula shared the spotlight with protégée-turned-successor Dilma Rousseff during her inauguration as president of the New Development Bank (NDB). Describing the multilateral bank as a tool to “finance infrastructure, sustainable development, as well as social and digital inclusion,” Rousseff framed the NDB as an alternative to BWIs for emerging economies that “respects and reaffirms the sovereignty of each country.” Less willing to parse his words, Lula hailed the bank for its potential to free countries from “submission to traditional financial institutions,” comments that resonate with the $822 million he has secured from the NDB since taking office.

As Brazil maneuvers the international stage with its “multipolar” approach, the rest of Latin America is also witnessing a rise of leftist administrations, a phenomenon known as the Second Pink Tide. For BWIs, the implications are two-fold. First, these governments have expressed more interest in diversifying their trade and financing options, including beyond the current geopolitical fault lines. Second, while remaining interested in multilateralism, many Latin American leaders have voiced frustration with BWIs due to their governance structure and lack of country-specific policy flexibility. For BWIs to remain relevant and effective in this changing scenario, they must do three things:

Flexible lending protocols: The traction gained by institutions like the NDB highlights the allure of financial organizations that offer terms acknowledging the unique challenges of each member country. Recognizing the economic dynamism of countries like Brazil, BWIs ought to introduce countercyclical lending. Such a system would tie loan repayments to a country’s GDP performance or export earnings, serving as a buffer against economic volatility. This would not only make loan portfolios more resilient, but also enhance the role of BWIs as stabilizers in the global economy.

Collaborative financing: Brazil’s burgeoning relationship with China and stake in the NDB signal its move towards diversified financial sources. BWIs should respond in kind by creating instruments that pool resources. For instance, the World Bank and the NDB could jointly finance sustainable infrastructure projects in the region, combining their expertise and financial resources. Likewise, financial packages that combine grants, equity, concessional loans, and non-concessional financing would allow BWIs to cater to the specific needs of countries. Beyond direct financing, sharing data and analytical tools would foster a deeper understanding of market trends, risks, and opportunities—enhancing the predictive power and response time of these institutions.

Overhaul of Governance Structures: The power dynamics of BWIs, primarily determined by economic contributions, have historically favored high-income countries. To account for the rise of emerging economies like Brazil, China, and India, BWIs should recalibrate voting rights to allow these countries more significant influence over decisions. Similarly, leadership roles within BWIs have traditionally come from the internal deliberations of their respective Executive Boards. To foster trust and global collaboration, leadership positions should be open to candidates from a broader range of member countries, ensuring representation from different regions and economies.

With Brazil embracing multipolarity and deepening its alliances with global powers, the landscape of international finance is poised for a seismic shift. The onset of the Second Pink Tide across Latin America emphasizes the region’s turn to diversified economic partnerships and departure from the conventions of BWIs. For these institutions to remain impactful, they must adapt—prioritizing flexible lending protocols, promoting collaborative financing, and ensuring more inclusive governance. Only by acknowledging and addressing the evolving attitudes of countries like Brazil can BWIs hope to sustain their relevance in an ever-changing global order.

Jack Tapay-Cueva is a former Next Gen Fellow with the GeoEconomics Center’s Bretton Woods 2.0 Project.

David Dong is a former Next Gen Fellow with the GeoEconomics Center’s Bretton Woods 2.0 Project.

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Image: Brazil's President Luiz Inacio Lula da Silva delivers his opening remarks at the BRICS Summit in Johannesburg, South Africa. August 22, 2023 REUTERS/James Oatway