The new BRICS bank and its implications for Asia

In the recently concluded 5th BRICS Summit in Durban, South Africa proposals for a new BRICS led development bank were floated and discussed. While the summit failed to finalize plans on the proposed bank’s operations and structure, a ‘broad consensus’ has emerged within the BRICS nations for the need of an alternate multi-lateral development agency operating outside the ambit of the World Bank and its sister agencies.

Though modalities concerning funding are being worked out initial reports do point to a planned initial investment of $10 billion dollar by each member country. These developments are encouraging and should be welcomed by Asian based emerging markets and new-frontier economies that are starved of funding and are desperately seeking financial assistance.

Frankly, the push for a new multi-lateral lending agency should be viewed within the lens of an increasingly confident and assertive BRICS member nations whose economic prowess accounts for 25% of global GDP and 17% of international trade backed by $4.4 trillion dollars in foreign exchange reserves. The failure of the World Bank to adequately represent 43% of the world’s population and articulate their position in the formulation of its development plans and economic priorities has also necessitated this change.

The real test now is whether South-South cooperation can break ranks and capitalize on an opportunity to provide a new vehicle for precious resource allocation and implement critical poverty reduction programs so as to transform the lives of millions of people living in parts of Asia, Africa and Latin America.

For the new BRICS bank to succeed however it needs to formulate an underlying mission statement-a common vision. What that statement will be needs to be defined now where a brighter economic future for all is envisioned. The bank should not be BRICS-centric where a select few benefit from club membership nor should it be used as a political lever to dominate and brow-beat other countries.

While it is understandable that the priorities of BRICS nations would come first such as the planned $4.3 trillion in infrastructure spending it would be a mistake and big disservice to overlook the requirements of other developing countries. Another worry is the possibility of intra-BRICS politicking where the path of strategic competition is adopted at the expense of mutual economic cooperation. India in particular should be keen to avoid the mistakes of the past and resist the temptation to play a spoiler by attempting to act as a strategic counter-weight to China in Asia.

The fact is that the World Bank and IMF are limited with their own capacity constraints and can no longer carry the burden alone of allocating scarce economic resources. In addition, global economic governance can no longer be left to the administration by the World Bank and IMF whose aid conditions and shock therapy policy prescriptions have left developed countries saddled with debt while subsidizing the lifestyle of its incompetent ruling elites.

A BRICS bank some of whose members have undergone painful World Bank/IMF mandated reform first-hand is better placed and will be more receptive to the needs of the South than D.C. based financial oligarchs. Moreover, competition among the lending agencies whether perceived or deliberate should be welcomed as a precursor to the inevitable reform existing international development agencies will have to undergo if they are to remain relevant.

In the backdrop of the Great Recession in the United States and systemic crisis of the Euro-zone it would be both advisable and prudent to utilize the excess savings of BRICS nations to support struggling economies. It remains to be seen what impact this news BRICS bank will have on the volatile and fluid global scenario. What is clear is that the prevailing financial order has failed and an empowered and independent BRICS bank is needed to reverse the tide.