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In their preoccupation with fiscal deficits, developed countries' policymakers continue to neglect a different, yet equally critical, shortfall: the trust deficit between advanced and emerging economies when it comes to global governance.
For decades, developed countries' shareholders in the International Monetary Fund and the World Bank used loan conditionality to spur economic reforms - often including contentious fiscal-austerity measures - in the so-called Third World. Through pragmatic, sustained reform efforts, countries like Brazil, China and India turned their economies around to achieve stunning increase in their GDP growth - from an average annual rate of 3.5 percent from 1980 to 1994 to 5.5 percent since then.
But, although developing countries now account for more than half of global GDP growth, advanced countries have yet to admit them to leadership roles that reflect their growing influence in the world economy.
The failure so far of the United States Congress to ratify the IMF reform package agreed to by G20 finance ministers and central bank governors in 2010 is the latest breach of trust - one that makes the promise of adequate representation for emerging economies seem like a shell game. The US' unwillingness or inability to ratify the package - which includes doubling the IMF's funding quota and shifting 6 percent of the new total, together with two directorships, to developing countries - undoubtedly contributed to the decision by BRICS (Brazil, Russia, India, China and South Africa) to establish their own development bank.
In fact, a backlash against Western hegemony in global governance has been brewing for years, with developing countries increasingly turning away from the IMF in favor of creating alternative, regional sources of funding. The Association of Southeast Asian Nations, together with China, Japan and the Republic of Korea, established the Chiang Mai Initiative in 2000, and Latin American countries launched negotiations on Banco del Sur in 2006.
The accelerating erosion of emerging economies' trust in the Bretton Woods Institutions is particularly problematic now, given slow growth and continued economic weakness in advanced countries. While the world economy is expected to grow by 3.3 percent this year, average annual growth in the advanced countries is projected to be just 1.2 percent.