BRICS Bank: A good step forward

At the recently concluded annual BRICS Summit in Durban, the leaders of participating countries Brazil, Russia, India, China and South Africa agreed in principle to establish a new development bank to mobilise resources for infrastructure projects. The infrastructure financing needs of these five countries will amount to about US$4.5 trillion over the next five years, and considering that insufficient long-term financing and foreign direct investment have been constraints in infrastructure development, the decision to set up a self-serving development bank is an exciting one.

This was an idea that first emerged in 2012, when finance ministers of the five countries were asked to study the viability of establishing such a bank that would fund infrastructure and sustainable development projects in the BRICS countries and other developing economies. The BRICS countries are now “satisfied” that the idea is “feasible and viable”, they said in a statement.

It is still early days yet and the BRICS nations have not worked out details pertaining to the bank’s size, location and leadership just yet. Moreover, there are bound to be teething issues with the successful implementation of this idea due to a few factors, the most important of which is the dominance of one country over the rest. China’s economy is significantly larger than that of the other four nations and of the five, it is the country that least suffers from a shortfall in the availability of funds for infrastructure. As such, there is much skepticism around the proposed bank and questions about whether the five countries will be able to arrive at common ground given their differences and given the strong dominance of one over the other.

A few commentators have questioned whether the idea will ever come to fruition, whilst some others have been critical of the proposed bank as they believe it will be redundant, irrelevant or both. The International Monetary Fund (IMF) has been guarded in its reaction to this new development and has merely said it is “following this initiative with great interest”. Coming from the IMF, this is hardly surprising, considering its reluctance to allow any institution to have even a semblance of a say in its own affairs.

While lofty, this aspiration of the BRICS countries is definitely understandable and called for. For much too long now, emerging economies have continued to be treated largely as fringe players in the governance of the global economy. The clout enjoyed by these economies at the multilateral institutions has not kept pace with their growing economic standing. The changing economic realities have not reflected at the international institutions and hence, it is imperative for the key emerging economies to have their own mechanisms in place that could reduce their reliance on dictates from elsewhere and allow them to make decisions in their own best interests.

For instance, institutions such as the IMF and to a lesser extent the World Bank, have always provided economic assistance such as loans and grants with strings attached; and oftentimes, the conditionalities attached to this assistance have been onerous enough to have severe consequences on the development of local industry and economy. A development bank managed by developing economies hence has a nice ring to it. And a lot of potential.

What Durban will lead to is anybody’s guess. But even if the bank only manages to attain a few of its goals, the efforts to set it up will not have been entirely wasteful because these efforts signal to the world the emerging world’s desire to be in control of its own economic future.

(This was a column published in the Himalayan Times on 31 March 2013)