The emerging economies signed the long awaited document to create the $100bn BRICS Development Bank and a reserve pool of another $100bn. The document was signed at the 6th BRICS summit held at Fortaleza, Brazil on 16th July 2014. Among its goal is to provide funding for infrastructure projects and create a Contingent Reserve Arrangement (CRA) worth $100bn to help the member countries from future financial shock.
Ever since the idea was mooted, many questions were raised from different quarters as to the actual potential of such a bank. Some pose the question: Does the world really need a BRICS bank? To them, development finance is already crowded.
Apart from the multilateral and regional institutions, several sub-regional institutions like the Caribbean Development Bank, Islamic Development Bank are there. National Development banks like China Development Bank and Brazilian Development Bank (BNDES) are also there. BNDES is now much bigger than the World Bank in terms of gross disbursement. It even has branches in South Africa, the UK and Uruguay.
The critics of BRICS Bank have perhaps forgotten that it represents 40 per cent of global population, 18 per cent of global trade and have US$ 4.00 trillion in combined foreign reserve. Its key objective is to have a more say in the global financial order being dominated by the West.
Over the years, BRICS countries and many developing economies in Asia invested their large foreign reserves in the US gilt edged securities mainly because of the strength and international standing of the US dollar. These large reserves can not only bridge the massive infrastructure deficit of those countries
but can also pave the way for upliftment of millions of people out of poverty.
A report on the Economic and Social Survey for Asia and the Pacific produced by ESCAP in 2010 estimated that infrastructure deficit could have been adequately met in the region in a couple of years if US$ 800 billion per annum was allocated to the Asia Pacific region. The report also indicated that the rate of return of the partial fund to be invested in the region would have been greater than the return from US market.
The existing local, regional and multilateral banks cannot meet the infrastructure deficit in emerging and developing countries which is estimated at close to US$ 1 trillion. The new BRICS bank may become a supplement in this regard.
This new international financial institution can be an additional source of fund and knowledge and help meet developing world's tremendous infrastructure needs. The BRICS countries as well as other developing countries can aptly take the benefit to phase out their own borrowings from the World Bank and the Asian Development Bank.
Sceptics in the West expressed doubt about the success of the idea of five DISPARATE nations which can hardly act together. There is also scepticism that the new bank may have weaker safeguards against environmental damage, pollution and other hazards often associated with massive infrastructure projects. However, it is almost like condemning an institution before it begins its journey.
Surely, the BRICS members do have diverging or even conflicting interests (e.g., territorial dispute between China and India) among themselves.
But at the same time while Shanghai is chosen as the Headquarters of the new bank, the first President of the bank will be an Indian, first Chairman of the Board of governors will be a Russian, first Chairman of the Board of directors will be a Brazilian and the first regional centre of the bank will be in South Africa. This clearly demonstrates that the BRICS members have exercised prudence.
Although the IMF Chief Christine Lagarde welcomed the new development bank and expressed willingness to work together, but the
West is not comfortable with any attempt that would give a platform to the developing world to have a bigger say in the world financial order.
It may be worth recalling that the attempt made by Japan to form an Asian Monetary Fund consequent upon the East Asian Financial crisis was frustrated by the IMF and the US Treasury.
No doubt, many questions still remain unanswered such as: Will China go ahead with the establishment of the Asia Infrastructure Investment Bank? Will the BRICS bank loan have a more concessional rate than the World Bank?
To what extent will BRICS represent the interest of all developing countries? Indonesia, Turkey, Afghanistan, Egypt, Iran, Nigeria and Syria have shown interest to join BRICS. Bangladesh has also expressed its willingness to join the new institution. Will they be taken in? The answer to these questions is to be sought after the BRICS initiatives start gathering momentum.
The BRICS bank and its Contingency Reserve Arrangement (CRA) will pave the way for advancing reforms in international financial architecture and taking it in favour of emerging developing economies which still have a weak voice in the G-20 dialogue. This weakness is amply demonstrated on the lack of progress in IMF quotas and governance reforms which have been in the global debate for some years now.
The BRICS efforts will serve as counter-balance to the World Bank and the IMF-the Bretton Woods institutions widely perceived as unduly influenced by western shareholders.
The launching of BRICS bank and CRA is a concerted step for reshaping the western dominated international financial system. Although it is the first step to challenge the domination of the US-influenced World Bank and the IMF and the US dollar, the most likely relationship between the two
is complementary rather than conflicting.
Of course, competition between the two will intensify in the long run, but both BRICS and World Bank should be adaptive to
the changing world financial
scenario.
The new development bank is a sign of a changing world. BRICS leaders must be aware that the new institution should not be used as a platform to only advance their own interests. Rather, this should be a common platform for realisation of common goals of the developing nations.
zabirsajjad@yahoo.com
BRICS Bank: How will it fare?
Sajjad Zabir | Published: August 22, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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