Omniloquence

Global Conversations Beyond Discipline

BRICS are Breaking the Power Structures in International Development

Image by Russian Presidential Press and Information Office

The 2008 Global Financial Crisis caused many Western economies to decline and many are still struggling to recover. On the other hand, many emerging and developing economies remained resilient and experienced some growth.1 The differences have created an opportunity for emerging economies to demand greater power and representation at various global institutions including the World Bank and the International Monetary Fund (IMF). The United States, United Kingdom, France, Japan and Germany have historically had the largest voting rights, dominated the governance, and influenced the policies of both institutions.2 This does not represent the diversity of the membership and other countries have repeatedly demanded for change but the pace of reforms has been slow.

Recently the leaders of Brazil, Russia, India, China and South Africa (BRICS) have decided to use another tactic – starting their own multilateral financial institution. The BRICS launched the New Development Bank (NDB) in July 2014 at their annual summit.3 Since its launch, the NDB has begun to raise discussion about its potential to become the first major alternative to the World Bank and IMF, for developing countries. The BRICS have stated that the aim of the Bank is to increase economic cooperation between its members, and to provide finance for infrastructure and sustainable development projects in emerging and developing countries. Some critics have argued that the NDB will not be a success because the BRICS, particularly China and India, have competing political and economic interests. A signal that such criticism is not unfounded was seen when tensions over control of the Bank emerged at the 2014 BRICS Summit.

India proposed that the Bank headquarters be located in New Delhi whilst China was pushing for Shanghai to be the headquarters. After tense negotiations, it was agreed that the Bank headquarters will be located in Shanghai. In order to ensure that each member has equal influence over the Bank’s development, it was agreed that position of Bank President will rotate amongst the BRICS. It was also agreed that each member will have an equal share of voting rights in the Bank, which will to ensure that power is balanced and that no member has the majority power to veto decisions, as is the case with the United States in the World Bank and IMF.

In addition to the NDB, the BRICS signed a Treaty to establish the Contingent Reserve Arrangement (CRA), a US$100 billion reserve meant to help countries facing short-term balance of payments pressures. Many commentators have questioned how the BRICS, who have large numbers of poor themselves and are only emerging from developing countries status, can spend so much money on a development bank. However, Indian Prime Minister Narendra Modi has been quick to counter that the BRICS are “a group of nations working together based on their future potential rather than their existing prosperity or shared identities”. Despite Modi’s defence China’s poor history on multilateral cooperation coupled with its current economic strength does raise some concerns about whether it will be able to effectively govern the bank with the other countries. Then again, the NDB might just provide China with a good training ground to improve its international relations.

New Global Superpowers

The West’s reluctance to significantly reform the World Bank and IMF has fuelled the creation of the New Development Bank but the BRICS also have another motive – greater influence in global affairs. In recent years the BRICS, both individually and as a group, have been implementing various measures to assist them to emerge as leaders in the rapidly changing global political economy. For instance, despite having an economy far smaller than BRIC, South Africa’s formal inclusion in the grouping in 2010 was made to ensure that the group is more representative of all regions outside the West, and thus strengthen the groups legitimacy.4

Over the last decade Brazil, India, China and South Africa have also become some of the leading sources of foreign investment, trade, and development assistance for developing countries, which they consider a part of South-South cooperation. These acts of ‘solidarity’ are all strategies that they are using in order to position themselves as leaders of the Global South. In contrast, Russia, the ‘white horse’ of the BRICS, does not identify itself as a developing country or its assistance as a part of South-South cooperation.5 Russia has also shown limited interest in the reform of global governance. It appears that Russia, whose position as a global superpower declined after the end of the Cold War, joined the BRICS with the aim of positioning itself as ‘a bridge’ between the North (Western countries) and the Global South. However, President Vladimir Putin’s annexation of Crimea and support of separatists in Eastern Ukraine has created a rift with the United States and Europe and the BRICS may now be Russia’s best bridge to the West.

The NDB and developing countries

The NDB presents developing countries with a number of potential benefits. One of the most important benefits is that it will provide an additional source of finance for countries that are in desperate need for infrastructure e.g. roads, railways, telecommunications, electricity, water and sanitation facilities. Infrastructure financing is one of the most pressing needs of developing countries, particularly those from Africa and the Pacific islands.6 Investment in infrastructure stimulates economic growth through increased trade and investment, as well as human development through the provision of better schools, hospitals, and water and sanitation facilities. It can only be hoped that increased financing from the NDB will have a positive knock-off effect and push other multilateral financial institutions to direct even more finances towards infrastructure development.

Another major potential benefit of the NDB is that developing countries will receive lending on less stringent conditions than would be expected from the World Bank and IMF. Through policy prescriptions attached to their lending, the two institutions have been able to greatly influence the socio-economic and political policies of developing countries from the 1980s onwards. The BRICS on the other hand, emphasise a policy of non-interference in the affairs of other countries and each members imposes very few or no policy conditionalities at all on their bilateral development assistance.7 The BRICS are expected to extend these principles to the operations of the New Development Bank, which will contribute to developing countries having greater autonomy and ownership of their development plans.

Conclusion

It may take at least 15-20 years before the NDB can seriously begin to challenge the World Bank and IMF but its establishment does signal that the balance of global power is shifting. Once it becomes operational, other countries will become shareholders in the New Development Bank. It will be interesting to see whether the BRICS will be more open to giving new members an equal say or whether they will dominate it in the same manner that the United States and European countries have dominated the Bretton Woods institutions. This will signal as to whether the BRICS manage to achieve their goal of balancing global governance or instead become another hegemonic sphere of influence in the new multipolar world.


  1. United Nations Development Programme (UNDP) (2013) Human Development Report 2013- The Rise of the South: Human Progress in a Diverse World, UNDP, New York 

  2. Vestergaard, J. & Wade, R.H. (2014) Out of the woods: Gridlock in the IMF, and the World Bank puts multilateralism at risk, DIIS Report 2014:06, Danish Institute of International Studies 

  3. Ministry of External Relations of Brazil (2014) Agreement on the New Development Bank, BRICS Summit, July 15, 2014, Fortaleza, Brazil, http://brics6.itamaraty.gov.br/media2/press-releases/219-agreement-on-the-new-development-bank-fortaleza-july-15 

  4. The grouping was originally known as BRIC. The acronym was coined in 2001 by a Goldman Sachs economist Jim O’Neill to describe the fastest growing emerging market economies 

  5. Mwase, N. & Yang, Y. (2012) BRICs Philosophies for Development Financing and Their Implications for LICs, IMF Working Paper No. 12/74, International Monetary Fund 

  6. Dornan, M. & Brant, P. (2014) Chinese Assistance in the Pacific: Agency, Effectiveness and the Role of Pacific Island Governments, Asia & the Pacific Policy Studies, Vol1, No. 2; Wenping, H. (2011) ‘Infrastructure and Development Cooperation: China’s Program in Africa’, in Emerging Asian Approaches to Development Cooperation Conference Papers, Korea Development Institute & The Asia Foundation 

  7. Mwase & Yang (2012: 5)  




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