Trithesh Nandan/Zee Research Group/Delhi
July 1944 marked a major change in the world economic order with the Bretton Woods conference announcing formation of the multilateral institutions. In what could be considered a coincidence 70 years later, leaders of Brazil, Russia, India, China, and South Africa (BRICS) have assembled in Fortaleza, Brazil, from July 14-16 to discuss the ‘New Development Bank’, the BRICS Bank.
The idea of an alternative to the Bretton Woods multilateral institutions was first mooted in 2012. However, due to the lack of consensus among member countries the Brics Bank is yet to see light of the day.
The main aim of the BRICS Bank is to step up lending infrastructure projects. It has advocated USD 50 billion of start-up capital with each five members evenly contributing to it. The bank will also set up a USD 100 billion contingency reserves pool to help its member countries.
Even though the BRICS Bank is trying to rewrite rules of development, the main lending will only start from 2016.
For the last two years, member countries have been ironing out differences on the framework of banking procedure. Other member countries are opposed to the idea of China wanting to hold the presidency, purse strings with a start-up capital of USD 100 billion and Shanghai as its headquarters. Questions have also been raised on China’s intention which has huge foreign reserves and economic weightage with which it may start dictating the terms.
When America had thrown the idea of multilateral institutions it hardly met any opposition as it is being seen in the case of China and the BRICS Bank. In July, 1944, representatives from 44 nations sat at Mount Washington Hotel in Bretton Woods, New Hampshire, to discuss on the International Monetary Fund (IMF) and the World Bank (WB).
Such is the power-sharing formula, that the IMF has always been headed by Europeans, while Americans have occupied the top position of the WB. The voting shares of the developed nations are far ahead of developing countries, even though the latter grew economically.
The world is at a critical stage, however, not like it was in the 1940s. But the scars of the six-year-old financial crisis still trouble nations. There is a yawning gulf between rich and poor. Even economic growth has failed to lift millions out of poverty. Also, oil crisis due to emerging terrorist threat in Iraq and climate change are major challenges.
All the above mentioned crises exist even after the multilateral institutions dominating the world proceedings in the seventh decade, often accused of being biased towards the western nations.
The BRICS nations, with nearly one-fifth of the global GDP and 40 per cent of the world’s population, face huge infrastructure deficit. In India alone, USD 1 trillion investment is needed for the creaky infrastructure woes during the 12th five year plan (2012-17). Brazil and South Africa face similar problems. In total, the BRICS nations themselves have an estimated USD 4.5 trillion in infrastructure needs over the next five years.
It’s no doubt that multilateral institutions provide the finances, but it is not without inappropriate conditionality in exchange of loans for reforms. Even the insiders like the Noble Laureate economist Joseph Stiglitz, who resigned from the WB, publicly pointed fingers at the institute.
Since Bretton Woods, the world has seen many development banks: World Bank, Inter American Development Bank, African Development Bank, Asian Development Bank, European Investment Bank. However, there is enormity of financial and social security gaps in the developing nations. Neither the WB fulfilled its mission of alleviating poverty, nor could the IMF prevent economic crises.
It is here the BRICS Bank has to be different from others!