Home' Trinidad and Tobago Guardian : July 24th 2014 Contents BG24 COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt JULY 2014 • WEEK FOUR
It is news that should awaken the World
Bank and the International Monetary
Fund (IMF) from their complacent
attitude toward developing countries.
It is also news that should confirm to
the G20 that what used to be the G7---
a group of the seven industrialised nations---
no longer controls the world s financial affairs.
On July 15, Brazil, Russia, India, China and
South Africa (BRICS) established the New
Development Bank and alongside it a Con-
tingent Reserve Arrangement (CRA).
The two institutions will serve the needs
of the five countries for financing infrastructure
and industrialisation, and to provide support
in the event of a balance of payments crisis.
The New Bank will be headquartered in
Shanghai, with India as its president for the
first term of six years. It will be capitalised
initially with US$50 billion. Each BRICS mem-
ber state will subscribe an equal share. The
CRA will be funded with US$100 billion. China
is contributing the largest share of about US$41
billion while Russia, Brazil and India will put
in US$18 billion each and South Africa US$5
The creation of the New Bank and the CRA
is motivated by frustration with the pace of
reform of the IMF and the World Bank to give
a greater voice to the BRICS.
In the Fortaleza Declaration after their meet-
ing in Brazil, the five BRICS leaders---Brazilian
President Dilma Rousseff, Russian President
Vladimir Putin, Indian Prime Minister Narendra
Modi, China s President Xi Jinping and South
Africa s President Jacob Zuma---stated that
international governance under its current
structure and power configuration show
increasing signs of losing legitimacy and effec-
They said "the BRICS are an important
force for incremental change and reform of
current institutions toward more representative
and equitable governance capable of generating
more inclusive global growth."
The BRICS are also concerned that the new
vision for global economic governance, artic-
ulated by the G20 in 2009, has not materi-
alised. And, while Brazil s President Rousseff
was careful to say that the world should not
see the Bank and the CRA as a desire by the
BRICS to dominate, she made it clear: "We
want justice and equal rights. The IMF should
urgently revise distribution of voting rights to
reflect the importance of emerging economies
Whether the New Bank and the CRA remain
open only to the BRICS or they widen their
lending to all other developing countries, their
establishment signals that it cannot be business
as usual for the World Bank and the IMF, and
that decision-making in the G20 will have to
BRICS represent 42 per cent of the world s
population and roughly 20 per cent of the
world s economy based on GDP. Total trade
between them is US$6.14 trillion, or nearly 17
per cent of the world s total. Importantly,
together they are the world s largest market
and their combined GDP grew by more than
300 per cent in the last ten years. Those are
not figures to be scoffed-at, and the BRICS
have now shown that they are serious about
Other developing countries, including those
in Caricom, should applaud the BRICS for
creating their two new institutions. They have
all endured the harsh terms, rigid condition-
alities and unyielding dictates of the IMF and
the World Bank.
They would welcome any move that rattles
the Washington-based institutions, which are
controlled by the US and Europe, and encour-
ages them to reform and to be more flexible
in the treatment of developing countries that
are confronted with crises.
At the same time, the BRICS would make
a serious error if they kept the Bank and the
CRA as a closed shop for their subscribing
members only, or for other large developing
countries such as Mexico and Indonesia, that
might be encouraged to join. For the two new
institutions to command support from the
wider community of developing countries,
they should not repeat the mistakes of the
IMF and World Bank.
The New Bank could be a much needed
source of financing to developing countries
for infrastructure, industrialisation and pro-
ductive development that many nations, such
as those in the Caribbean Community (Cari-
com), are now denied.
Except for Haiti, Caricom countries (13 of
them) have been graduated from access to
concessional financing by the World Bank.
The CRA could also allow developing
economies to draw on pooled reserves in the
event of balance of payments crises on terms
that are more appropriate and more sympa-
thetic than those now applied by the IMF.
Risk management, a high-quality loan port-
folio that improves development but keeps
default to a minimum, surveillance and profits
are all crucial to any bank s successes, and
they will be vital to the New Bank s survival;
so standards will have to be high. But within
those important parameters the BRICS should
devise ways in which they could allow other
developing countries, particularly small and
medium-sized ones, to buy into the New Bank
and the CRA on terms they can afford.
Arrangements should also be made for bor-
rowings by developing countries on less oner-
ous and more sympathetic conditions than
the requirements of the IMF and World Bank.
In other words, the BRICS institutions
should create competitive conditions for lend-
ing that would cause the Washington-based
financial institutions to soften their criteria
for lending and their terms and conditions,
thus giving developing countries particularly
small and vulnerable economies, more accept-
able access to financing and a better chance
to survive and prosper.
While the IMF and the World Bank may be
aroused by the BRICS creation of the New
Bank and the CRA, they will continue to be
influential players in the wider world economy.
It is significant that the BRICS remain members
of the IMF and World Bank where, undoubt-
edly, they will use the alternative of their new
institutions to try to leverage larger voting
shares for themselves.
Small economies, in particular, should not
be left as mere spectators to the competition
between the Washington-based financial insti-
tutions and the newly-created BRICS Bank
The writer is a consultant, senior fellow
at London University and former Caribbean
The new bank of BRICS
What's in it for small economies?
The leaders include:
Narendra Modi, Prime Minister
of India; Xi Jinping, president of
China; Jacob Zuma, president of
South Africa, Dilma Rousseff
president of Brazil, and Vladimir
Putin, president of Russia.
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