The BRICS countries recently established $100-billion development bank that some say could rival the World Bank. Ali Burak Güven believes it could shake up the world of development financing:
[I]f its evolution even remotely parallels that of the World Bank, it might end up having a formative impact on economic policy-making and overall development strategy in the Global South.
To begin, while there is no shortage of national and regional development banks as well as private financiers of infrastructure projects, there is still a massive gap in development finance, estimated to be as high as $1 trillion per year. Many developing countries encountered significant financing problems during the global crisis of the late 2000s. This shortfall necessitated a surge in World Bank commitments, from an annual $25 billion in 2007 to about $60 billion in 2010. But commitments declined just as swiftly over the past few years, and as of 2013 stood at about $30 billion. Given these figures, the New Development Bank’s readily available $10 billion in paid-up capital and the extra $40 billion available upon request are not exactly pocket money for development financing.
Yet just as the World Bank was never simply a money lender, so too will the new bank represent far more than a mere pool of funds. The existing geostrategic and policy inclinations of its founding stakeholders imply a bigger role to play for the institution. In the process, it is bound to offer a formidable challenge to the World Bank’s financial prominence and so influence policy in the developing world.
Dingding Chen describes the BRICS bank as “a direct challenge” – though not a threat – to the IMF and World Bank:
Many view (here and here) the new BRICS bank as a response to the failed reforms at the IMF and World Bank as developing countries like China and India cannot increase their influence within those institutions. However, it should be kept in mind that the BRICS bank is not currently challenging the international liberal economic order. China and India are perhaps the two greatest beneficiaries of an open liberal economic order; and thus the BRICS bank should try to push the IMF and World Bank to be more open and transparent. Ultimately the competition between the BRICS bank and the IMF and World Bank should be about efficiency rather than a struggle between liberal vs. alternative economic philosophies. In this sense, there is a strong complementary relationship between the BRICS bank, the IMF and the World Bank.
Branko Milanovic wonders whether the bank can develop a “coherent ideological package to rival the Washington consensus policies”:
In their new bank, the BRICS will have a similarly cheap and useful instrument with which to wean former Third World countries off their dependence on Washington and impose their own agenda instead. The challenge will be to provide a similarly coherent ideological package to rival the Washington consensus policies of balanced budgets, currency convertibility and privatization. A shared economic and political ideology, very much present among the Western countries, from Bretton Woods in 1944 to the euro crisis now, is totally lacking among the BRICS. It is not even present in an embryonic form. Chinese economic policies and Chinese development precepts for the rest of the world (if they exist at all) have little in common with Brazilian or South African policies. In order to be really useful to its founders, the BRICS bank will have to not only learn to practice multilateralism but also define its own approach to development.
This likely lack of either procedural or economic rules for lending is the biggest threat to the BRICS bank. If its only ideology is to be anti-Washington and to do things by pure pragmatism – that is, to lend to whomever the sufficiently important members decide to support – it will fail ignominiously.
Meanwhile, Benn Steil and Dinah Walker are skeptical of the venture:
The irony is that India and China are the biggest beneficiaries of the current development bank architecture. They are the World Bank’s largest borrowers. And Brazil is number 9. … [T]hese three nations have $66 billion in World Bank loans outstanding, 32 percent more than the new BRICS bank’s entire initial subscribed capital of $50 billion. So it would appear that for the foreseeable future the World Bank will remain a considerably more important source of development financing for the BRICS than their own development bank.
The Dish 