Proposed BRICS development bank and global game changer potential

Making world news these days is the announcement made by BRICS leaders (Brazil, Russia, India, China, and South Africa) that they plan to launch a new development bank. Analysts view this as a move to reduce the group’s dependency on the two Bretton Woods institutions – the IMF and the World Bank.

BRICS leaders have been repeatedly asking for a major overhaul of the governance structure of these two institutions and wanting the next heads of these institutions to be from developing countries taking into account the changed world economic scenario.

Even the final statement made reference to it stating that today’s global architecture is run by institutions that were established during a different era. The two-day meeting of BRICS leaders, held in Durban, South Africa, also raised issues such as the impact of developed country monetary policy on trade, and the importance of the next WTO chief being from a developing country.

The final document released at the end of the two-day meeting outlined the importance of cementing the BRICS alliance further. “We aim at progressively developing BRICS into a fully-fledged mechanism of current and long term coordination on a wide range of key issues of the world economy and politics.”

Collectively, the BRIC economies are expected to account for 60% of global growth between now and 2014. Taken together, the four countries’ economies (not counting the newest member, South Africa) are on track to surpass that of the US by 2020. An organisation with members of such strength is obviously here to stay as can also be seen by their decision to set up a virtual secretariat to impart continuity and manageability to BRICS deliberations at various levels.

The most-awaited outcome at the meeting was an announcement on the establishment of the development bank which on a previous occasion the BRIC leaders had said that “the goal would be for the bank to mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries.”

The leaders have now confirmed that the planned development bank “is feasible and viable” and would “supplement the existing efforts of multilateral and regional financial institutions for global growth”. However officials had indicated that many issues remained to be ironed out before the bank is actually established. Specifics of the bank’s mandate and how exactly the bank would be financed are some of the issues where there is no agreement as yet.

Many are the critics of the BRICS decision to launch their own development bank, who are of the view that the varying political and economic situations of the members of BRICS have made it difficult for them to reach common ground on many issues. On the other hand, the fact that they remain together meeting regularly since 2009 also merits consideration.

What is also noteworthy is that the summits have been attended by the countries’ leaders, emphasising the importance they attach to this collectivity and their efforts to find unity in diversity. It must be kept in mind that even the EU is not made up of members who are not equal economically or politically.

Although critics also note this diversity as cause for the inability to announce the formation of this development bank at the recent meeting, the fact that they announced plans to launch such a bank is also important. Any such institution cannot be established overnight. After all, Rome was not built in a day.

The merits in such a bank lie in that it is expected to be development-oriented and regional savings could be channelled for infrastructure through such a bank and that in the long term, the bank could be utilised to assist other developing countries. A related decision to set up a contingency reserve fund of $ 100 billion is also noteworthy.

Whatever critics make out about the development bank of BRICS being only an announcement for the future and not an immediate launch, as an editorial in the Hindu pointed out, such a bank has “the potential to be a global game changer”.



(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)