(April 6, 2012) – Not content with the Western-dominated global financial system, five emerging economic powers are paving the way to a new and more egalitarian world order.
At the fourth BRICS Summit in India on March 29, the leader of Brazil, Russia, India, China and South Africa (BRICS) agreed to explore the establishment of a new development agency to challenge the World Bank. The so-called BRICS Development Bank, would generate resources to fund infrastructure and core sector projects in emerging economies.
“This issue [of a BRICS Development Bank] has been brewing for quite some time. This summit brought it to the next practical level,” said Martin Khor, executive director of Geneva-based South Centre, an intergovernmental organisation of developing countries.
“Not only was it the subject of a special statement of the BRICS, finance and economic ministers from these countries met to deepen discussions, giving rise to the expectations that such a bank will be established in the coming year,” Khor told Asia360 News. “The impact will be significant.”
Underlining the seriousness of their dispute with the West’s approach to financial issues, BRICS leaders threatened to hold back additional financing requested by the International Monetary Fund (IMF) to fight the European debt crisis unless they gain greater IMF voting power.
In the Delhi Declaration issued at the summit’s conclusion, BRICS leaders said there was an urgent need to “better reflect economic weights” and “enhance the voice and representation of emerging market and developing countries” at the IMF.
“BRICS countries are sending a clear message out to the world that the manner in which the World Bank and the IMF operate — especially in the area of governance — is not acceptable.
“These countries are being pressured to contribute funds, especially to the IMF, to help Europe. But now, they are asking why they should do that if they do not have the corresponding influence [within the IMF],” Khor added.
The need for such an institution highlights “the dangers of existing multilateral organisations failing to mobilise sufficient resources to support large developing countries”, outgoing World Bank president Robert Zoellick told the Financial Times in New Delhi on March 30. Pushing middle-income countries, like China, India and Brazil, out of the World Bank system and forcing them to look for resources elsewhere would also be a “mistake of historic proportions” for the Western bloc, he added.
Interestingly, just a few days prior to the BRICS gathering, Zoellick told the media that the BRICS Bank “is a complicated venture which will have a hard time getting off the ground and [to] match the expertise of the World Bank”.
According to the Delhi Declaration, BRICS finance ministers will come together in a joint working group to study the feasibility of the BRICS Bank. The working group would submit its report at the next meeting in South Africa in 2013.
Many experts agree with Zoellick’s earlier scepticism.
“BRICS Bank would find it difficult to raise money on the markets, as the sovereign ratings of some of the members are barely investment grade. The amount that can be raised, its cost, and thus the unviable cost of lending [would make it an unwieldy exercise],” said Rohit Bansal, CEO and Co-Founder of India Strategy Group, in an opinion editorial in India’s The Daily Pioneer newspaper on March 30.
Sudhir Vyas, a senior Indian foreign ministry official, told reporters on April 2 that the BRICS nations are aware of the issues.
“Such an ambitious project would take time. We don’t set up a bank every ordinary day,” he said.
Pragmatic issues need to be resolved moving forward. How much money should be deposited? What’s the governance structure like? What are the various approved uses of the funds? And will the criteria and conditions for the loans be significantly different from those of the current IFIs [international financial institutions]?
Nonetheless, the BRICS bank is expected to be to be different and better. “The lending terms would be more realistic and attuned to the realities of the developing countries that require the funds,” Khor noted optimistically.
The five countries also agreed to use their own currencies when trading among themselves, effetively reducing their dependence on the US dollar as the main currency of trade.
Many businesses in the five countries are already doing that, “but now their heads of states have made it clear that they are open to receiving payments in their own currencies. By putting their stamp of approval, the BRICS leaders made the point that they are not happy with the global reserve system,” Khor pointed out.
Commenting at the outcome of the summit, French daily Le Figaro said on March 30 that “little by little, the BRICS are asserting themselves”.
Khor agreed: “Technical meetings between the ministries of these countries are held throughout the year, and not just confined to a once-a-year symbolic meeting. Add to that the practical steps taken at the highly visible recent summit and one can say that BRICS is here to stay.”
A multi-polar world is finally upon us.
