New BRICS bank to break World Bank, IMF duopoly
After the world’s top developing economies — Brazil, Russia, India and China (BRIC)– met for their first summit in Yekaterinburg, Russia in 2009, they released a communique on the need for more “diversified, stable and predictable” international monetary system. The commitment to cutting Western influence in this space has not waned ever since, as an alternative to the existing US-dominated World Bank and International Monetary Fund has now been launched by the BRICS (became BRICS after South Africa joined in 2010). However, president of the New Development Bank (NDB) says it is not competing with the international financial institutions.
“Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way,” said Indian ex-bank executive, Kundapur Vaman Kamath who is NDB’s first President.
The Shanghai-headquartered bank will lend money to developing countries to help in financing infrastructure projects.
Finance Minister of China, Lou Jiwei said the lender’s support for infrastructure projects will reduce “long-running bottlenecks faced by emerging and developing countries, and help them speed up, adjust and upgrade economic development.”
The bank commences operations with a capital of $50 billion equally funded by founders, which will double in the coming years. There is also a $100 billion contingency fund to be held in the reserves of each BRICS country.
The world’s largest foreign exchange reserves are held by China. The Asian giants will, therefore, contribute the bulk of the contingency fund ($41 billion). Brazil, India and Russia will contribute $18 billion each and South Africa $5 billion.
The new bank is coming at a time South Africa is faced with infrastructural decay and budget deficit. It may get its first developmental loan in 2016 when the bank starts lending. Other African nations are expected to jump on the BRICS bank train as it is open to membership by other countries.
The NDB shows the growing influence of the BRICS, following the establishment of the China-led Asian Investment Infrastructure Bank (AIIB) in June. However, this should not come as a shock seeing that members of the group account for about half of the world’s population and more than a quarter of global GDP.
The BRICS bank brings into consideration every past criticism of the World Bank and the IMF to formulate its policies. The Western-backed lenders have been attacked in the past for not giving developing nations enough voting rights; NDB’s solution was giving equal voting rights to members and ensuring none of the countries have veto power.
Although a World Bank Vice President Karin Finkelston says the lender was looking forward to cooperating with the new institutions (NDB and AIIB), fears linger in the West (especially US), that China, which is the largest contributor in both banks, has an end game of asserting greater influence over the lenders to expand its political clout abroad, the establishment of AIIB and NDB is good news for Africa, a country that needs about $93 billion per year to develop infrastructure.