Two new international banks are emerging in not-too-distant future. One is the New Development Bank (NDB) and the other the Asian Infrastructure Development Bank (AIDB). China is giving leadership in setting up of both the banks.
The NDB, mooted by the BRICS (Brazil, Russia, India, China and South Africa), is still in the embryonic stage. The five BRICS member countries are now in intensive consultations among themselves. The bank, as all indications have it, will be specialised in infrastructure investment.
The proposed bank, having US$100 billion paid-up capital, is scheduled to start its functioning from 2016. China will contribute the largest share of the capital-US$41 billion; Brazil, India and Russia will provide $18 billion each, and South Africa $5 billion. Unlike the IMF and the World Bank, the BRICS bank will be 'quite democratic' as all the five sponsors will have equal voting rights.
The planned BRICS bank has already whipped up a storm in international as well as Bangladesh media. Although the BRICS summiteers did not even hint at the political ramification of the move, most of the press assumes the venture to be a challenge to the West-dominated World Bank and the IMF. IMF Managing Director Christine Lagarde has, however, welcomed the BRICS bank and pledged to work with it to ensure global financial stability.
China has already invited Bangladesh to join the AIDB and has sent the bank's draft memorandum of understanding (MoU). But whatever the contents of the MoU are, Bangladesh will gain immensely by joining, in any form, the bank which is to be specialised in infrastructure investment. The proposed bank will be an addition to the International Development Association (IDA), the soft lending arm of the World Bank (WB) or the Asian Development Bank (ADB)
Bangladesh has reasons to feel elated at the prospects of launching the two international banks. The two will give better options to the country to choose loans from at terms that will be favourable to it. The country requires huge funds at low cost to finance its big infrastructure projects. It also needs to give a big push to infrastructure development in order to attain the status of a middle-income country.
According to a World Bank estimate, Bangladesh will have to spend $7.4 billion to $10 billion a year until 2020 to bring its power grids, roads and water supplies up to the standard needed to serve its growing population. The report said, in total, the country will require between $74 billion and $100 billion between 2011 and 2020 or 7.38 per cent to 10.02 per cent of its gross domestic product (GDP) to improve infrastructure. The two new banks are expected to provide financial support to Bangladesh's development efforts on easy terms.
Despite recent rapid growth and poverty reduction, Bangladesh continues to suffer from insufficient economic growth, slow urbanisation, and huge infrastructure gaps that together could jeopardise future progress. It is essential to close its huge infrastructure gaps. And here lies the importance of Bangladesh becoming an active member of the NDB and the AIDB for getting sizeable funds at relatively lower interest rates.
With numerous private banks offering credits at lucrative terms in world financial markets today, the importance of institutions like the WB, the IMF and the ADB has already been diminished. The NDB and the AIDB too might face a similar situation if they fail to deliver the goods: loans at interest rates and terms lower than what the IDA or the ADB offer.
Very critical for Bangladesh, however, is the proper use of foreign credits in infrastructure projects. There has not yet been transparent use of such foreign loans so far. To cite a glaring example, the four-lane Dhaka-Chittagong highway project is still limping due to the procrastination of foreign contractors engaged in project implementation.
In fact, it is lack of good governance that is most worrying to development analysts. Whatever loans the IDA or the ADB or the two new banks will give Bangladesh on account of infrastructure development need to be utilised properly without any pilferage. Blaming the international funding agencies for their terms will lead us nowhere. The status of middle-income country will remain a mirage if misuse of project funds is not stopped. Even lower interest rates and attractive terms of foreign loans will not help Bangladesh.
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