“Inclusive Growth and Sustainable Development” has led to the foundation of BRICS, a collaboration of five major emerging economies of the World viz. Brazil, Russia, India, China and South Africa. These are the developing, fastest growing newly industrialised countries with a combined effort of 20 percent World GDP and about 3 billion population. In order to nurture the financials & the development of these emerging markets, BRICS has introduced a $50 billion multilateral development bank, known as the BRICS New Development Bank (NDB), in the 6th BRICS summit held in Brazil, 2014. It will be headquartered in Shanghai, China. The bank is meant to finance sustainable development projects, to strengthen the global financial safety and to promote international cooperation.
From the past 60 years, western based lending institutes like World Bank and International Monetary Firm, which were initiated at the Bretton Woods Conference, has objectives of fostering global monetary cooperation, promoting international trade, bringing in financial stability, encouraging high employment and reducing poverty through sustainable economic growth. They give advice and finance member countries to bring economic stability during their difficult time.
Unlike World Bank and IMF, NBD will work on equal share where each of the five signatories will contribute $10 billion each. Contingency Reserve Arrangement (CRA) of $100 billion will be maintained to manage additional financial problems which include the problems related to balance of payments and other financial shocks. China will fund 41% of the CRA, 18% will be given by Brazil, India & Russia each and 5% will be given by South Arica. The capital base of NBD will be used to finance the infrastructure and the core sustainable development projects in BRICS countries initially and then other low & middle income countries will also be able to apply for funding.
BRICS faced several difficulties while dealing with IMF and World Bank. Few Economists consider that World Bank & IMF make poor poorer and the rich richer by making them pay high interest for the debts that are issued and by serving the wealthy countries and the Wall Street. One of the strategies, which were been followed by the World Bank, is ‘the freedom to increase the prices’. They call it a Poverty Reduction Strategy. However, increase in price of medicines in Africa during AIDS epidemic led to death of many children. Moreover in Bolivia, increase in the price of water led to riots. World Bank increased the price of the cooking gas by 60% in Ecuador for which the nation exploded as the real wages shed down and more than half of the population came below the poverty line. The economy of the poorest region in Africa came down by more than 2%. Moreover, IMF is highly influenced by U.S. due to its maximum share in the capital. This brings in the geopolitical factor which affects the aid provided to the countries. IMF and World Bank favoured the British and American pharmaceutical companies by promoting the Intellectual Property rights, and thus did not allow South Africa to sell cheap medicines for their citizens even during the health crisis (Refer Figure 2). Moreover, they promote privatization and liberalization along with free trade practices even when, in few countries, the situation demands the reverse. It has been observed that of all the developing countries 80 percent of the malnourished children live in the countries where the farmers were forced to shift from food production for the local consumption to export crop production for the wealthy countries. Also, certain steps taken by them has led to environmental degradation like increased cocoa exports from the Ivory Coast has led to a loss of two-third of the country’s forest.
The idea of the BRICS nation is to develop NDB, which can be seen as a step towards an independent economic policy decision making, and to have less dependency on the political whims of America and thus increase the BRICS leverage condition. It is a way to find an alternative to the financial hub America. BRICS countries want to create more optimised financial vehicles which can support their efforts, especially to promote both hard and soft infrastructure. It is undoubtedly a geopolitical move as none of the five countries want to be dependent on U.S. for the funds especially during the conflicts of Ukraine & Russia and distressed situation between China-US market due to lack of transparency in the U.S. trading market. According to the Bloomberg, China will be the World’s largest economy by 2020 and India will become the third largest consumer market by 2025, thus reflecting the change in World’s order. This creates the need of a lot more infrastructure funding in theses developing nations. World needed the reforms in the IMF and the World Bank like shift in the voting rights. However, hardly any change has been observed, as U.S. wants to remain in power and strategise its move in order to reduce the growth of the developing nations. Hence, it became necessary to bring in the concept of New Development bank to reshape the global economy.
However, this concept seems to complement the existing financial institutes rather than replacing it. World Bank lends over $60 billion each year where as NDB aims to reach an initial goal of lending $30 billion, which is much smaller an amount to become a supplementary organization. Undoubtedly, politically and geopolitically, BRICS do compete and use bold statements to provide institutional underpinning to the upcoming BRICS Development Bank. However, BRICS can help the social development projects where the World Bank is unable to fulfil the demand like Africa’s infrastructure deficit which is to the tune of $80 billion per annum. Hence, instead of fighting for superiority, these financial institutes should opt for ‘Growth & Development model’ and work together to strengthen the economy of the World.
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Nice read. Some nice points made here regarding how the US wants to sustain its control over world economy and how the BRICS can potentially help boost development in other countries as well. 🙂