A BRICS-led South-South Development Bank, founded by Brazil, Russia, India, China and South Africa that would be funded by them and work to aid developing countries is moving closer to a reality.
The BRICS countries have seen their development surge over the past several years, although there have been some recent slowdowns—particularly in Brazil and India. However, the size of their economies has led them to chafe at the lack of prominence they hold at the World Bank and the International Monetary Fund, where monetary policies advanced by wealthy nations hold undisputed sway. The term BRIC was coined by former Goldman Sachs Chairman Jim O’Neill in 2001, when he predicted that those four countries together would equal the U.S.’s economic output by 2020. In 2010 South Africa joined the group at the four members’ invitation.
The BRICS have been agitating for years for more voting rights and more influence over how the world’s finances are managed, to no avail. The U.S. has yet to ratify a 2010 agreement to make changes at the IMF, which, together with the World Bank, has dominated economic policy for seventy years.
Considering that the BRICS together hold over 40% of the world’s population and a quarter of its GDP, with foreign currency reserves of $4.4 trillion, some would say it’s long overdue that these countries have more say in the working of the world’s finances, and a greater part to play in how developing nations gain access to funds. Neither are the BRICS happy at the continuing helming of both the World Bank and the IMF by unchallenged U.S. and European heads; just last year American Jim Yong Kim beat out candidates from Colombia and Nigeria to take the top slot at the World Bank.
BRICS nations are determined to change that. Last year, the five countries proposed their own bank, which would not be reliant on the West for funding or policies, would not be dependent on the dollar and the euro, and would make its own decisions about where and how to encourage development. A meeting of the group in Durban, South Africa this week is intended to be the scene of this new bank’s formation—although an agreement on how funding will be structured is still being worked out.
Each country is expected to contribute an initial $10 billion to fund the new body’s launch, and therein is the rub. BRICS leaders meeting in Durban ahead of the summit have agreed in principle to the bank’s formation, but there is disagreement over whether, as originally proposed, the contribution should be fixed at the same amount for each country, or whether larger nations—such as China—should bear a heavier part of the funding burden. Still, the summit will include a mention of the bank in its final communiqué and the BRICS intend to revisit the issue at an April G20 meeting.
Colin Bradford, director of the Brookings-CIGI global governance reform project in the Global Economy and Development program at the Brookings Institution in Washington and a former chief economist at the U.S. Agency for International Development, said that while a BRICS bank would certainly not rival the World Bank in size, it would “be under the control of the five powers, instead of the whole world.”
The creation of a BRICS bank is a political move, said Bradford, with a different focus than existing institutions. “I think it would try to deliberately offer a distinct style, different methods for implementing loans; it’s designed to do that. The idea is to be different, not the same [as the World Bank.] That’s the whole point,” Bradford said.
The dispute over funding, and thus control within the new institution, is no small challenge. “The Chinese could give enough to dominate the whole thing. Do the others want China to dominate? Probably not,” he said.
While he is not on the scene observing the state of negotiations, Bradford said of the current stalemate over funding logistics that it’s “probably tough” to determine each country’s contribution. “How can the Chinese be big givers, and [the others] not turn it over to the Chinese? I think they’ll deflect the issue to the finance ministers and let them figure it out,” he said.
Negotiations over the bank may not be progressing as much as the BRICS would like, but certainly they are not ready to let the matter drop, if only out of sheer frustration with the IMF and the World Bank. One step that indicates the BRICS’ frustration with the West as a source of funding and financial policy is the currency swap agreement reached between China and Brazil at the summit. According to the terms, up to $30 billion in bilateral trade will be covered for a period of three years as both countries try to forestall problems in the financial markets should another crisis erupt and dollar funding tighten. The agreement is expected to be operational by the middle of the year.
Just a year ago, the BRICS nations also opened their own futures exchange, offering their investors additional opportunities to pursue foreign investment.