After years of railing against the Western-dominated global financial order, a powerful bloc of the world’s emerging economies has finally done something about it.
On Tuesday, the BRICS nations — Brazil, Russia, India, China and South Africa — formally introduced their long-awaited $100 billion development bank, to be headquartered in Shanghai, and a currency reserve of the same size, institutions that aim to be both competitor and antithesis to the World Bank and International Monetary Fund.
The New Development Bank (NDB), announced at the sixth BRICS summit in Fortaleza, Brazil, has been billed as an answer to decades of grievances in the developing world about a global financial architecture that critics say the United States and Western Europe have exploited to enforce the subservience of the developing world.
“The BRICS bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said Tuesday.
The hotly anticipated announcement was seen as a watershed moment for a coalition that has struggled to prove it is anything more than an acronym with 20 percent of the global GDP and a shared distaste for the unipolar world order. Since its first summit in 2009, the group has struggled to institutionalize its otherwise incoherent grouping, which is often at loggerheads politically and is too geographically disparate for a security framework to be viable. It even has discordant views on how to manage trade, which has precluded a trade partnership from materializing.
Negotiations hit an impasse Tuesday and were nearly derailed as the two nations vying for supremacy within the bloc, India and China, pleaded their respective cases for hosting the bank’s headquarters. India apparently relented in return for the first five-year presidency of the bank, which should be up and lending by 2016.
Though at first the NDB will bankroll badly needed infrastructure projects in the BRICS nations, other countries will be permitted to buy in and apply for funding.
The impetus for launching a bank run by the emerging world was born amid the global financial crisis of 2008, when economic turmoil and imprudent financial planning by the U.S. and Europe sent shock waves through the less industrialized world. The West had lost credibility as the world’s financial manager, a role it has held undisputed since world leaders meeting in Bretton Woods, New Hampshire, set up the IMF and a predecessor to the World Bank in 1944.
At the same time, the U.S. Congress has refused to approve a draft deal that would restructure the Washington-based Bretton Woods institutions to boost voting power for China and other developing nations, which feel shut out even though they now contribute substantial funding.
“What the BRICS are doing is showing they’re going to play a greater role in the global financial system, one way or another,” said Peter Hakim, president emeritus of the Inter-American Dialogue, a think tank that focuses on Western Hemisphere affairs.
Despite the ambitious rhetoric of BRICS officials, their projects are not the first of their kind, nor will they compete with the 66 years of development experience under the World Bank’s belt or with the liquidity of the $755 billion IMF. Most economists describe the BRICS bank as complementary, rather than a rival, to the World Bank — in fact, the World Bank president himself has welcomed the BRICS’ venture as a means of filling the vast funding gaps in rapidly developing countries.
But the BRICS have also promised to do things differently, offering no-strings-attached loans that do not permit the lender to meddle in a country’s domestic affairs.
That lofty promise is a direct affront to the World Bank and IMF, whose "one size fits all" loan programs mandate unpopular austerity measures and budget cuts while encouraging rapid export production — a model that developing world economists say stunts a poor country’s domestic institutions, undermines its leadership and molds it into a commodities workshop for the West. Argentina, whose IMF-imposed budget cuts in the 1990s hastened the country toward default, is often held up as the poster child for Bretton Woods reform.