New Development Bank (erstwhile Brics Development Bank)
The term BRICS, coined by economist Jim O’Neill today reflects in the newest socio-economic bloc on the ever increasing bi-lateral and multilateral arrangements on the global map. Earlier referred to as BRIC, the bloc was expanded to include South Africa in 2010, thereby becoming BRICS.
With members – Brazil Russia, India, China and South Africa - with more than 40% of the world population and 20% of the world’s GDP, BRICS projects itself to be the alternative platform for emerging/developing economies to project a collective face against the richer arrangements such as G-7.
Estimated to overtake G-7 economies between 2027-2050, the bloc calls for establishment of an equitable, democratic, and multipolar world order (June 2009 summit declaration). It is with this objective and with intention to provide an alternative to multi-lateral financial institutions such as International Monetary Fund, at 5th BRICS 2013 summit, the BRICS leader reached an agreement to establish the BRICS Development Bank, now rechristened as New Development Bank (‘Bank’).
On July 15, 2014, the Bank was formally instituted with BRICS leader signing the creation document in the 6th BRICS summit in Brazil.
The Key Highlights/Feature of the Bank are:
1. The Bank has been instituted with a $ 10 billion with each member state contributing $ 2 billion (to be provided over a period of seven years). The Bank shall option to induct other states as shareholders subject to minimum shareholding of BRICS nation not falling below 55%.
2. The Bank shall be head quartered at Shanghai, First Regional Center in South Arica China with its President from India for a term of five years, inaugural Chairman of the Board of Directors from Brazil and inaugural Chairman of Board of Governors from Russia.
3. The member states have also agreed to create a $ 100 billion Contingent Reserve Arrangement to act as a buffer in case of any future currency crisis. China shall contribute $ 41 billion, India, Russia and Brazil $ 18 billion each and South Africa $ 5 billion. However, no timelines have been set out for the same.
4. The Bank has the mandate of provide funding for infrastructure projects in the founding member states as well as in other emerging economies and is expected to start lending in 2016.
So, how does it help?
1. The emerging economies, despite remarkable performance on economic fronts, continue to face severe challenges on development front. India and China fall way below average on Human Development Index, involve themselves into large wasteful expenditure such as defense and often fail to reap benefits of demographic dividend largely due to lack of meaningful employment opportunities.
To fund their infrastructure projects, specially the economically unviable ones, these economies depend on the financial assistance from multi-lateral financial institutions such as IMF.However, the IMF funds often come with severely restrictive conditions, which are often considered detrimental for these economies in the long term.
2. The Bank wishes to correct this anomaly through funding the infrastructure development projects in the member states at terms and conditions which keep their long term interests intact.
3. Success of BRICS and the Bank is expected to increase the clout of the bloc in the global economic negotiations and give the member states a much bigger say in the construction of new economic order.
4. The Asian economies have, on several occasions in past, suffered from wide currency fluctuations due to American and European currency and fiscal policies. The Contingent Reserve Arrangement is expected to insulate its members from, or at least reduce the impact of, international currency crisis.
While BRICS members have been able to project a unified face on the economic front, there are many areas of conflict among its members specially India and China.With growing agreements on the economic front, it is expected that the friendliness shall also percolate to the social and political issues.
CAclubindia
