BRICS bank: A challenge to World Bank, IMF?

An agreement was signed among its member-states at the sixth BRICS summit meeting held in Fortaleza, Brazil on July 15, 2014 to establish a US$100 billion BRICS Development Bank. Scheduled to be based in Shanghai, China, the BRICS (Brazil, Russia, India, China and South Africa) bank aims at funding infrastructure and development projects in developing countries. The bank will have an authorised capital of US$100 billion to help these countries ease short-term liquidity pressures.
A group of experts argues that the BRICS development bank could be seen as a counterweight to Western-backed Bretton Woods institutions the World Bank (WB) and the International Monetary Fund (IMF) that shape global finance today. To them, such an attempt provides a clear message that global economic power balance is shifting. Another group of experts, however, says that the new development bank will push a little or no challenge to the Bretton Woods system.
Whether the new BRICS Development Bank will be a challenge for the Bretton Woods institutions can be examined from three levels of analysis:  internal level, counter level and target level.
From internal level, by considering position of the BRICS countries, the new development bank is pursued as a counterforce to West-dominated World Bank while its reserve is seen as a 'mini-IMF'. The BRICS countries are an emerging force on the global economic arena as it accounts for 42 per cent of the world's population, 21 per cent of global economic output, 25 per cent of global Gross Domestic Product (GDP), and total foreign currency reserves of $4.4 trillion. With these indicators of strengths, the BRICS countries have been loud in demanding reforms in the World Bank and the IMF to give developing countries more voting rights.
In addition, the BRICS member-countries have a shared desire for sound and active participation in global financial system. But these states had so far no institutional platform for cooperation. The establishment of a new development bank is the first concrete step by the BRICS countries toward reshaping the Western-dominated international financial system. The new bank reflects the growing influence of the BRICS in world affairs.
The BRICS bank is scheduled to start lending from 2016 and will be open to membership of other countries, but the capital share of the BRICS cannot drop below 55 per cent. Of the $100 billion currency pool, China will contribute large share of $41 billion, while Brazil, India and Russia will provide $18 billion each and South Africa $5 billion. Unlike the IMF and the World Bank, the BRICS bank is 'quite democratic' as here the founding members have equal voting rights.
But BRICS countries may have trouble in reconciling stark economic and political differences that will make it hard as a group to turn rhetoric into concrete action. It had taken more than two years to establish the bank as the member-countries were in negotiations over the share ratio, headquarters, first presidency and so on.
Thus, to many experts, success of the BRICS bank to challenge the Bretton Woods institutions depends on several aspects of the new development bank such as institutional framework, financial arrangement, membership, tackling internal political and economic differences among BRICS countries, power to influence global economic system and so on.
From counter level, the response from the World Bank and the IMF regarding the establishment of the new development bank is very significant. The World Bank reacted saying it is ready to support the new development bank, predicting it to be an 'invaluable partner'. Managing Director of the IMF Christine Lagarde congratulated the BRICS countries for its efforts to establish the new development bank and hoped to work together to preserve global financial stability.
In fact, the statements from the World Bank and the IMF are only of customary nature rather than operational policy. The BRICS bank has a political reality and its establishment could put increased pressure on the West, especially the US, to reform the Bretton Woods institutions. The creation of the bank will lessen dependence on the West and create a more financially multi-polar world. So the US and other Western countries will never admit any attempt that will go against their national and global interests.
From target level, it is important to understand the influence, conditionality and intention of loans given by both BRICS and Bretton Woods institutions to targeted developing countries. The BRICS bank is intended to provide developing countries with alternative to funds from the Bretton Woods institutions. The World Bank or the IMF has extended its loan facilities to developing countries with tough conditionality such as limiting public spending, opening up of the economy to foreign investment, abolition of tariff and non-tariff barriers, deregulation of market, privatisation of state-owned firms etc. Success and popularity of the new development bank will depend on key questions that are how and to what extent the lending conditions of this BRICS institution will differ from those of the Bretton Woods institutions and favour interests of the developing countries.
The developing countries like Bangladesh can see in the creation of a new development bank an opportunity as they can gain more access to large-scale financing for infrastructure projects from both the World Bank and the BRICS bank by keeping themselves neutral in the global financial rivalry among Western bloc and BRICS countries.
In the final analysis, it can be argued that unequal global influence and conflicting interests of each of the five BRICS countries seemingly may give rise to a lot of concerns about the success of the bank. It is too early to say whether the BRICS institution will ultimately challenge the Bretton Woods institutions. For years to come, the new bank may emerge as a powerful competitor. What is significant that the BRICS bank will create a complex international political economy where the developing countries have to face dilemma whether to keep relations with the BRICS institution or Western-dominated Bretton Woods institutions. For the sake of international development, it will be prudent policy for these two rival institutions to establish a framework and platform to work together in future.
The writer is a post-graduate from the Department of International                    Relations, University of Dhaka. [email protected]