Brics nations form their own mini IMF
THE formation of the New Development Bank (NDB) by the five Brics countries — Brazil, Russia, India, China and South Africa — will help these nations pursue their ambitions.
Jeremy Stevens, Standard Bank’s research analyst based in China, said the initiative would help South Africa and Brazil push regional trade, investment and infrastructure development, domestic job creation and poverty reduction.
It would aid China in broadening the market for its currency, get higher returns on its reserves and de-politicise that country’s investments.
India and Brazil could use the bank as a promising source of funds for their sizable infrastructure needs. Russia’s participation aided its ambition to tie itself to the next generation of economic heavyweights.
This week, the long-awaited Brics bank, which will be based in Shanghai, was established two years after the idea was mooted in New Delhi, India.
The NDB reflects how frustrated these increasing influential emerging countries are with Western institutions such as the World Bank and the International Monetary Fund (IMF).
Brazilian president Dilma Rousseff said: “It is a sign of the times, which demands reform of the IMF.”
The NDB is the first multilateral bank to be based in China, a country which, along with Russia, has not been shy to tell Western nations, particularly the US where to jump.
China is set to overtake the US as the world’s largest economy sooner than expected. India is on course to become the thirdbiggest economy by 2020.
Renaissance Capital’s global chief economist, Charles Robertson, said that if an American kept heading the World Bank and a European the IMF then countries such as China would eventually keep creating institutions to challenge them.
The group also launched a $100-billion contingency reserve arrangement, which member states can tap into in the case of balance of payment crises.
The NDB may be a step forward for Brics, but the institution’s practicality is under scrutiny.
The $10-billion bank, derived from economies with a GDP of about $15.8-trillion, will not be significant for many years to come, Robertson says.
Stevens expects the new bank to lend about $30-billion a year over the next five years.
This is dwarfed by the $61billion the World Bank, established in 1944, expects to lend this year.
“It is primarily a way for countries with low savings to tap the high savings of China. The World Bank faces no t hreat from this,” said Robertson.
Political Futures Consultancy director Daniel Silke echoed these sentiments, but said the bank may create competition for existing development banks.
Silke said that the NDB would have to tackle issues similar to those faced by the World Bank and the IMF.
Finance Minister Nhlanhla Nene said: “What is unique about this bank is that it is established by developing countries, which understand development challenges and have demonstrated their ability to tackle such challenges.”