The BRICS Bank gathers momentum: another sign of the world’s shifting power balance
The momentum behind the creation of a new international bank by the BRICS countries seems to be building steadily. Its leaders will review progress on the BRICS Bank at a special BRICS summit in the sidelines of the St Petersburg G20 Summit in early September. They expect to finalise plans for the Bank at the Sixth official BRICS Summit in Brazil in early 2014.
And there seems to be serious money on the table. There is agreement on the initial capital (US$50bn with 20% up front in cash and guarantees for the other 80%). That means it could rapidly become a major player – possibly the player – in development financing. China’s ExIm Bank and Brazil’s BNDES already each lend more to developing countries than the World Bank. It is not inconceivable that the BRICS Bank will soon overtake them. One possible (much smaller) model suggested by Brazilian officials is the Development Bank of Latin America (CAF).
The focus will be “infrastructure and sustainable development” – infrastructure has long been a bugbear of developing countries, who have complained that one unintended side effect of the MDGs (as well as pesky environmentalists) is to divert too much funding away from roads, electricity etc into schools and hospitals. It remains to be seen whether ‘sustainable development’ will in practice play second fiddle to infrastructure, and what the Bank means by the notoriously slippery term.
The political drivers behind the creation of the Bank are a combination of growing BRICS economic power and assertiveness and frustration with the slow pace of reform (eg over voting rights) in the World Bank and IMF, plus the lack of growth in their volume of lending.
The BRICS countries are keen to stress that the new funder will (initially at least) be complementary to the existing financial institutions, but If the BRICS continue their rise, their bank could one day eclipse the Washington-based financial institutions. Down the line, the Bank could well expand to other developing and developed countries, but the BRICS are likely to insist on retaining a controlling voice.
There are still lots of details to thrash out, including who contributes what, and whether voting shares should be proportional to contribution, or equally distributed among the BRICS.
And a lot of the issues that traditionally concern NGOs aren’t even on the table yet – environmental and social safeguards, participation, transparency, social accountability. It’s not yet clear whether the Bank will pick these up (as the Brazilians are likely to insist), or whether they say ‘nah, that’s all World Bank nonsense, we’re just going to get on with knocking stuff down and building new things in its place.’ The citizens whose taxes are actually paying for the Bank may have something to say about that.
How much influence is the Bank likely to have in the long run? Nobody knows, but it will be fascinating to watch – will it challenge the Washington ‘intellectual-financial complex’ and inject greater pluralism in debates on the role of international finance, industrial policy etc? And if it does, will the result help or harm people living in poverty? Interesting times.
More background here
And if you’re in the UK, there’s a panel discussion on the BRICS Bank, showcasing some new IDS research, in the House of Commons on 11 June. Details here