Shape of new bank slowly begins to emerge
The New Development Bank’s recent appointment of Indian banker KV Kamath as its first president will provide the facility with forward momentum. Set up by the BRICS countries Brazil, Russia, India, China and South Africa, the bank plans to start working as early as the end of this year; this will see the institution sort out crucial details in the next several months.
The bank will be operational by early next year at the latest, Shi Yaobin, vice-minister of China’s Ministry of Finance, announced earlier on the ministry website. He also said membership would extend to include any United Nations members as long as the board of governors agrees to their inclusion.
The establishment of the NDB was announced last July at the sixth BRICS summit in Fortaleza, Brazil. Its creation is intended “to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries”, according to the terms of the agreement the member countries signed.
NDB is also seen as a force to reshape the Western-dominated international financial system.
Kamath, 67, a veteran private sector banker, is currently non-executive chairman of ICICI, India’s largest private sector lender. He was CEO of the bank from 1996 to 2009, overseeing its rapid expansion and modernization.
Enrollment criteria aside, it is NDB’s future role compared with that of the Asian Infrastructure Investment Bank, which is also set to open by the end of this year, that catches the most attention.
Shi said the two banks are complementary and will work together.
“Both NDB and AIIB are important steps in financing infrastructure, sustainable development and propelling international economic governance,” he said.
“NDB, AIIB as well as other multinational development banks should all work together, complement each other and boost the collective financial power.”
Ni Jianjun, deputy director of the World Economy Research Center, part of the China Institutes of Contemporary International Relations, said: “China is employing a multi-layered, multi-path strategy in financing international development.”
Ni said NDB has its focus on the five BRICS countries, while other institutions are focusing on others.
“Together they can pair up to solve problems at different levels, and by letting different institutions answer different needs, such composition of forces could display maximum efficiency and effect.”
In certain respects, the NDB and the AIIB will overlap, said Sun Lijian, deputy director of the School of Economics at Fudan University. “But they also have clear-cut emphasis: NDB will propel BRICS and their adjacent countries, while AIIB will mainly serve the Belt and Road region,” he said, referring to the One Belt, One Road initiative.
The BRICS bank will start sketching out detailed operational policies once its management is established after its first governors’ council meeting, scheduled for Russia next month.
Zhu Xian, vice-president and chief ethics officer of the World Bank, and formerly with China’s Ministry of Finance and the Asian Development Bank, has been appointed vice-president of NDB for China. Brazil, Russia and South Africa will also each appoint a vice-president soon. Their first term will be for six years.
According to the initial BRICS agreement, the next NDB president after Kamath will be a Brazilian, followed by a Russian.
China is the biggest contributor to NDB’s $100 billion contingency reserve arrangement, at 41 percent. The CRA is different from the pool of contributed capital to the bank, which is equally shared among the five countries, at $10 billion each.
As the biggest economy among the five founding members, China will host the NDB headquarters in Shanghai. It is only natural that China’s engagement should be under the spotlight.
“We hope BRICS will learn the lessons from other multinational banks and design well its governance structure, its policies toward environment and social welfare projects,” said Shi, the vice-minister.
“We hope NDB will become a highly efficient, transparent and professional platform that boosts emerging economies’ growth.
“China will do its best to facilitate NDB’s operation here (in Shanghai). We will work with other BRICS countries, match our work to the highest standard and set the bank to work as early as possible.”
Taking past lessons and efforts at establishing effective financing institutions into account, Ni of the World Economy Research Center suggests that the biggest lesson of all is to have a leading party in the multilateral regime.
“For a development multinational bank to work, it has to have a core power,” Ni said. “A leading company should champion, push and follow the projects closely. That will make operations smooth and fruitful.”
China has ample experience in pushing forward international cooperation, and this will show in the NDB, he said. “At the same time, countries like Russia are eager to advance the NDB enterprise. So the bank should run quite efficiently.”
Ni also said that the NDB, as a longterm platform, should take care when it comes to emergency rescue projects that only aim at short-term outcomes and could be rife with contingency problems.
“This is also a lesson drawn from past international financing efforts.”
KV Kamath, newly appointed head of the New Development Bank