Will BRICS Bank be a rival to WB and IMF?

The group of five emerging economies - Brazil, Russia, India, China and South Africa - sat on July 15 and 16, 2014 at Fortaleza, Brazil and took two significant decisions which stand as challenge to the existing global economic institutions like World Bank and International Monetary Fund. It was the 6th BRICS Summit which saw the decision to establish a development bank with an initial investment of US$100 billion and it will start functioning from 2016. The Bank will be located in Shanghai with an Indian as its Chairman. The world economists find it as a strong counter to the existing financial institutions such as the WB and the IMF. For the past seventy years the International Monetary Fund and the World Bank have been the pillars of the world's economic system, coming to the rescue of countries in trouble and supporting development projects. But these institutions have regularly faced criticism from various corners for their inability to reflect the growing and important contributions of the major emerging economies to the global economy. "If the existing institutions were doing their job perfectly there would be no need to go to the trouble of creating a new bank, a new fund," said Paulo Nogueria Batista, who represents Brazil and then other countries in the IMF.
We can get the answer from Paulo Batista's remark why the BRICS countries are going to establish a new banking system in spite of the existence of WB and IMF. Some more contributory factors set the decision in motion to establish the new development bank. Fan Yongming, director of a BRICS research centre at Fudan University in Shanghai, said the western politicians' unfavourable opinion of the BRICS prospects is but a serious maladjustment of BRICS and world economic development. The five developing nations now account for 21 per cent of global output and have contributed more than 50 per cent of world economic growth in the past decade. According to Fan, the developing BRICS countries have three major advantages in future development compared with developed economies: population, resources, and the market. That means sufficient labour supply, abundant natural resources, and vast consumption potential which have been the main pillars supporting BRICS' fast growth and will remain so in the future.
Brazil, Russia, India and China formed BRIC group in mid-2009 which assumed the name BRICS in 2010 when South Africa joined this group. The key objective of the grouping was to have a bigger say in the global financial order which is currently dominated by western countries. BRICS represent 40 per cent of the global population, 18 per cent of global trade and possess US 84 trillion in combined foreign reserves but they have a poor say in the WB and IMF. The Economics and Social Survey for Asia and the Pacific Report 2010 produced by the ESCAP has estimated that if $800 billion per annum was allocated to the Asia-Pacific region, the infrastructure deficit could have been covered in the region that would have been higher than the returns from the US market and for this purpose only five per cent of the $5 trillion reserves in the region could have been used to create an Infrastructure Fund. Such thinking also influenced the BRICS leaders that they had enough savings and foreign reserves to establish a development bank that could provide funds for infrastructure projects in these countries and in 2011 the need for a BRICS Bank was germinated. Huan Wei, a researcher from the Chinese Academy of Social Sciences, said that the West has regrettably forgotten the fact that even with slowing growth, the BRICS economies still expand twice as fast as developed countries. Some western politicians are inclined to have a prejudiced opinion of developing countries, ignoring the positive side and hyping up the negative aspects.
The new development bank must have some challenges. India and China have long disputes over border issues. India also plays a hegemonic role in South East Asia. China has clinched the second position in the world economy, but it has also created anxiety among neighbouring states. China is seen as a threat and the probability of its becoming hegemonic has escalated in the region, especially with China's assertiveness projected in territorial dispute with Japan, Vietnam and the Philippines. The present role of Russia in Ukraine proves to be another weaker point. Still the optimists believe that India's greater emphasis on 'Look East' and China's shift towards neighbouring countries entails potential for cooperation.
It is believed by many that setting up a BRICS development bank will help ease financial inadequacy in such fields as infrastructure of the BRICS countries and will contribute to a greater negotiating capacity of BRICS to the international financial system. Meanwhile, establishing a contingent reserve arrangement will help emerging economies to cope with market volatility and uncertainty. Brazilian Ambassador to China Valdemar Leao said, "The establishment of a BRICS development bank sends a clear message to the world that the five countries are ready and determined to make greater contribution to the sustainable growth of their own countries as well as the rest of the world." 'Inclusive Growth: Sustainable Solutions' was the theme of 6th BRICS summit at Fortaleza. Through this summit came the Fortaleza Declaration to deal with international, political and economic issues as do all intergovernmental groups. On the political front, the BRICS leaders expressed their opinion on all international conflicts that threaten peace and security. Palestine-Israel conflict, Afghanistan, Syria, Iraq, different conflicts in Africa, nuclear proliferation, climate change are also the concerns of BRCIS Declaration. Its economic front promises to deal with the issues which the WB and IMF could not do successfully. Already Indonesia, Turkey, Argentina, Egypt, Iran, Nigeria and Syria have expressed their interest to join BRICS. Their expression of interest in joining the BRICS Bank which is not yet born fully signals its global acclamation and future success.
The writer is Program Manager: BRAC Education Program and Vice-President: Bangladesh English Language Teachers Association (BELTA). Email: [email protected]