In the BRICS Summit (15-17 July) in Brazil, it was decided to set up the BRICS Bank for development. It is said that this bank has been set up mainly to challenge the supremacy of the World Bank and IMF. This is a mere speculation and is intended to make the critics of World Bank and IMF happy. The discussion on Word Bank and IMF reform is going on for a long time. Reforms will be undertaken when all the shareholders of these institutions agree. If the BRICS Bank can do something different and better than the Bretton Woods twins, it will be a matter of satisfaction for the third world countries.
BRICS countries represent 40 per cent of world population and 20 per cent of world GDP. The BRICS countries-- Brazil, Russia, India, China and South Africa-- are likely to reach the level of US economy by 2050. It is interesting to note that the WB and IMF are not making any comment on the launching of BRICS Bank. Only a beginning has been made in setting up a third world financial institution. Its matching the World Bank and IMF does not arise.
India will be the first president of the new bank. Shanghai will be the headquarters of this bank. The bank will have an initial authorised capital $100 billion while it will start with a paid up capital of$50 billion and analysts believe that it may begin lending from 2016.
It is now discussed whether Indonesia, South Korea, Argentina, Mexico, Iran and Saudi Arabia should join the BRICS Bank. As third world countries, these countries should join the new bank, otherwise it will not be a strong institution.
The BRICS Bank has come at a time when the existing global financial institutions like the World Bank, IMF and Asian Development Bank are failing to meet the growing demand for funding huge infrastructure development projects in the developing nations. These multilateral financial institutions dominated by western powers follow a policy of selective lending to developing countries taking into consideration how it would further their political mileage and financial control over the recipient countries.
It should also be mentioned that these institutions are also overloaded with loan requests. The BRICS Bank may add more capital and choices before global financial system to support major infrastructure projects. There is a growing need for funding socio-economic activities also in areas such as health, education and expansion of social services. From this perspective, experts believe that launching of BRICS Bank has come at the right moment to make the global financial architecture broad-based for funding the needs of the developing world breaking the monopoly of the WB and IMF which often work against the interest of the poor countries.
The just concluded 6th Summit of the BRICS nations in the Brazilian city of Fortaleza has also decided to set up a Contingency Reserve Arrangement (CRA) along with the BRICS Bank. It aims at making available the urgently needed balance of payment support to member states once it comes into operation.
Nations were so far dependent on IMF loan for balance of payment support at critical moments and the institution was tying up loans to socio-political conditions in the loan seeking countries to secure restructuring of the economy and financial institutions to the advantage of western economies, regardless of how it affects the domestic politics. It has been estimated that close to $1.0 trillion funding is needed per annum to meet the infrastructure deficit in emerging economies and developing countries. The existing local, regional and multilateral banks can not meet this requirement and the new BRICS Bank will be able to supplement the contribution of the existing banks. This will also make the global financial system competitive.
The BRICS Bank will have to take logical and realistic steps to assist the development efforts and achieve poverty alleviation goals of the developing countries. Long term loans will have to be sanctioned and disbursed in a constructive manner. It will be counterproductive if the BRICS Bank adopts any special political agenda.
The charter of BRICS Bank falls short of democratic norms in the sense that the voting rights of the founding countries will not be less than 55 per cent. A large number of developing countries is likely to join the BRICS bank. Their voting rights will have to be considered. Bangladesh has indicated that it will join this Bank.
   The launch of the BRICS Bank will be a concerted step for reshaping the western dominated international financial system. It will be the first step to challenge the domination of the World Bank and the IMF. But question remains whether China will abandon its plan to set up the Asian Infrastructure Development Bank after the establishment of BRICS Bank and CRA. We have to wait and see.
The writer is an economist                     and columnist. jamaluddinsyed23@yahoo.com.au
Optimism about BRICS Bank
Syed Jamaluddin | Published: August 15, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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