At a BRICS
summit on Tuesday, July 15th, Brazil, Russia, India, China and South
Africa signed a declaration
that would establish a bank. While opening a bank doesn’t sound that significant
in itself, this particular bank is intended to compete with the World Bank and
the International Monetary Fund in regards to funding international development
and emergency financing. Each of
the five countries will fund the BRICS Development Bank, with initial projected
capital amounting to an anticipated $100 billion. Plans have already been made regarding the bank’s
headquarters (Shanghai) and nationality of their first president (Indian).
Nearly 42%
of the global population resides in the countries that make up BRICS, which
also accounts for a
fifth of the world’s GDP. While
they make up an enormous portion of the world economy today, the BRICS group
only accounts for roughly 11 percent of IMF votes.
Anticipated membership
of the Development Bank is expected to increase rapidly by developing nations
who have expressed dissatisfaction with the IMF. Concerns with IMF revolve around a lack of voting power and
strict austerity measures when funds are dispersed.
When reading this article, I was
reminded of our discussion at the end of class. Lenders that provide funding
to governments confronted with economic collapse hold a tremendous amount of
leverage. They can set
stipulations regarding reform, and influence how and where aid can be
applied. The interests of US and
Europe are both heavily weighted in the IMF and World Bank, allowing their
influence to be applied to emerging economies and developing countries when
their services are needed. UN
Development Program researcher, Gail Hurley, pointed
out that, “As the balance of wealth and power shift, the emerging economies
are increasing expressing their rights within these institutions. There is a consensus that the governing
structures of these institutions have to change.”
However,
there is now another option in addition to the IMF and World Bank that
developing countries can explore, one that threatens the influence of the IMF
and World Bank, and by extension the influence of the US and Europe. The economic autonomy of states
previously turned away by the IMF or World Bank may be bolstered the BRICS
Development Bank, and their sovereignty strengthened in the eyes of their citizens. The BRICS Development Bank may soon become a larger source of
global influence and wield greater leverage when it comes to fulfilling their
interests.
Joy, I also noticed this last week as it was relevant to my other course this summer on Global Governance. I agree that the BRICS Development Bank provides another option for developing countries, but I also think that there does not necessarily have to be competition between this new bank and the World Bank and IMF. There are plenty of developing developing nations that can use the assistance with a variety of projects. I think the challenge will be to begin with a few projects that are successful to establish credibility. By their nature, these projects tend to be risky or private banks would be taking the lead to ultimately to obtain a good return on investment.
ReplyDeleteI also wonder if the BRICS bank, when faced with these riskier loans, won't resort to some of the same austerity measures that the IMF does. It's clear that the IMF and WB do have leverage and, as a Western proxy, influence over borrowers. However, I'm not totally convinced that this relationship means that they *must* be influencing borrowers. It may just be that - at least some of the time - the cost benefit analysis requires such measures to justify the loan. Finding an answer to this would be an interesting research topic, looking at how often austerity is required and then achieved, and comparing the 'success' of loans when austerity is or is not achieved.
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