Long reviled as an artificial grouping of countries with little in common other than a sense of exclusion from the command structures of the international system, the BRICS forum has finally come up with a decision that has the potential to be a global game changer: the establishment of a “New Development Bank.” The absence of specific details in the eThekwini Declaration issued at the end of the fifth summit meeting of the forum in Durban has led western sceptics to conclude that the bank idea is a non-starter. They are mistaken. Even though Brazil, Russia, India, China and South Africa differ with one another on many aspects of the project, they do agree that a new bank is needed to take care of the special aspirations of the group and perhaps of all developing countries as well. The BRICS five account for roughly a fourth of the global GDP and 40 per cent of the world’s population. The proposed bank is optimistically projected to be an alternative to the seven-decade-old financial system dominated by the Bretton Woods twins, the International Monetary Fund and the World Bank. A shift away from the trans-Atlantic focus that the two global institutions are rightly criticised for ought to be welcomed. The global economy and the financial system are not exactly in the pink of health. Much of the drag on recent economic growth is due to the unsatisfactory performance of the advanced economies, which is itself a result of western financial mismanagement. And with the Doha round of trade talks still stuck, the BRICS forum’s call for the new head of the World Trade Organisation to be from the developing world, and for the revitalisation of UNCTAD, assume great significance.
Apart from doing the best on the growth rate front, China is the only BRICS country with a huge current account surplus and has accumulated a massive amount of foreign exchange reserves. In the prelude to the creation of the new bank, this divergence matters and should not be glossed over. The key determinants for success will be the design and leadership of the new bank, as well as its lending policy. In terms of sheer clout, China is likely to dominate, especially if a system of quotas reflecting the economic size and contribution of each country is adopted. These and other cautionary words should not, however, detract from the merits of the BRICS bank, especially its development orientation and stress on infrastructure financing. Channelling regional savings for infrastructure through a dedicated bank is a great idea. There is also great merit in growing step by step, as another related decision to set up a contingency reserve fund of $100 billion shows.