What would you do if you and some friends had a spare $100 Billion? Embark on space travel? Buy controlling shares in Apple and give iPhones and iMacs to everyone you knew? Pay Oprah to mud wrestle a series of specially selected politicians Hunger Games style?
If you are the BRICS (Brazil, Russia,India, China and South Africa) countries you start a New Development Bank.
The Bank could potentially allow developing nations to tell the World Bank and the IMF to take a ‘long walk off a short pier’, something they haven’t been able to do since the end of World War II. This follows a long haul of developing countries (most notably BRICS countries) calling for reform that recognises the emerging weight of developing nations and gives them more voting rights. As Mr Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, admitted, “In the IMF and the World Bank, the US and a handful of allies really do make almost all the decisions, and the vast majority of the world… doesn’t really have a voice.” So, goodbye to all that, maybe. And bearing in mind that the BRICS nations account for 20% of global GDP and 40 per cent of the world’s population, it’s about time, too.
The bank will start out with an initial capital of US$50 billion (S$62 billion) that could rise to US$100 billion, funded equally by each nation, but it will also create a currency reserve pool of US$100 billion, called the Contingent Reserve Arrangement.
Not ready? When exactly will the BRICS countries be ready then, in the opinion of the doubters?
According to the Brazilian President the bank and the reserve are meant to ‘bring about positive changes, ones that are equal and fair’ as well as cushion developing nations from any further economic crisis that could plague the globe (the latter being where the reserve comes into play).
But seriously, besides the take-a-running-jump message, the bank is meant to provide an alternative to development funding (first loan expected in 2016), a realm which for the last 70 years years had been dominated by the Bretton Woods institutions and characterized by such gems as the Structural Adjustment Program, rising “Third World” debt and economic collapse. The New Development Bank is a World Bank alternative whilst the reserve is a ‘Mini-IMF’. Aside from insulating developing nations against future economic crises – something quite necessary after what we’ve learnt from the last crisis unleashed on the world by western bankers – the initiative will finally give the BRICS the look and feel of a real organisation.
As expected anytime there’s a challenge to western power, the New Development Bank has its naysayers.
Not ready? When will the BRICS countries be ready then, in the opinion of the doubters? When their economies are growing as slowly as European ones? And of course, The Economist, the fine magazine that had the audacity to label Africa the “hopeless continent” 14 years ago before seeing the error of its ways in 2011, couldn’t help itself, snakily writing ‘Setting up rivals to the IMF and World Bank is easier than running them’, as if praying this fails before the ink is dry on the BRICS agreement.
That said, before we all get too excited about this and tell the World Bank and the IMF to go take a running jump, we do need to wait and see.
Big China, little South Africa
Should African countries be throwing in their lot with this new initiative and support our developing kin or should they work both sides until they are absolutely sure this isn’t just a new way to get screwed? This seems like a time where countries within the continent must put on their best poker face and hold their cards close to their chest until they can see better which way the chips are likely to fall.
The question is with a large number of people worrying about the increasing presence of Chinese initiatives within the continent, does Africa (through South Africa) have enough power to ensure that the interests of regional nations will be protected. In other words, to ensure that regional nations are not jumping out of IMF/World Bank fat into New Development Bank fire? This is not just idle anti-China speculation. After all, one of the reasons it took this long to reach an agreement was that China wanted economic strength to be the criteria for contribution. This would have given the country more control over the bank than any of the other members. In practice, it would have allowed China to use the bank as a mean to increase its political influence over countries that applied for funding, which is precisely what the World Bank and IMF have done for decades.
The Structural Adjustment Program in practice
The Structural Adjustment Program in practice
South Africa is our only continental representative in the group, but in this deal it has managed to come out looking like the runt of the litter. The African ‘powerhouse’ might be an equal contributor to the pool of capital, but it’s ponying up “only” $5 billion of the $100 billion Contingent Reserve Arrangement (China will contribute US$41 billion, while India, Brazil and Russia will contribute US$18 billion each). It also has a smaller population than any of the other member countries. This means it undoubtedly has significantly less pull, which is why the bank will be based bank being based in Shanghai, the presidency is to reside with India and first board chair will come from Brazil. South Africa has only managed to secure an ‘African regional centre’. I don’t want to make it seem like South Africa’s role is insignificant, or that it’s not a huge achievement to even be a part of this, but we do need to wait and see how this will play out in practice once the loans start being granted.
This could result in a neo-scramble for the political heart of the developing world
Amidst all this internal push and pull there is obviously the external one as well, between the global north and the global south, which reveals itself in the language used in talking about this deal. BBC news called the grouping the ‘so-called BRICS countries’ which, after so many years, comes off a little snide. Al Jazeera, who ought to know better, did the same (in the above clip).
Make no mistake though, by offering developing nations a route to bypassing the World Bank, the BRICS nations have just issued a direct challenge to the power of western institutions, and sent a message to Europe and the United States to let them know the balance of power they’ve worked so hard to maintain in their favour is no longer tenable. This could result in a neo-scramble for the political heart of the developing world as the two ‘banking orders’ seek to outdo each other and gain influence through funding.
But again, we need to remain optimistic but cautious. Yes, it is good that there is to be a financial institution run by nations who get ‘our global south context’ but we cannot assume that because it is for us by [one of] us that everyone will come out of this laughing.
African countries looking for infrastructure funding now have options and must utilise these options to make sure that we get the best deal possible, because at the end of the day, who, in this day and age, can really trust a bank? If you’re reading this you’re one of the 99%, and you know what that means.
Source : This is Africa