DURBAN: In game-changer of sorts, finance ministers of the BRICS countries comprising emerging economies of Brazil, Russia, India, China and South Africa have agreed on a South-South Development Bank that seeks to position itself as an alternative to the West-dominated Bretton Woods institutions and will provide development funding for countries of the global South.
“It’s done,” South Africa’s Finance Minister Pravin Gordhan said in the coastal South African city after a meeting with his counterparts from the other four BRICS countries. “We made very good progress,” Gordhan said.
Finance Minister P. Chidambaram represented India at the crucial meeting that has firmed up what is expected to be the showpiece deliverable of the summit of the $14 trillion grouping.
The finance ministers’ recommendations on the Bank will be encapsulated in the March 28 eThekwini Declaration that will mark the culmination of the 5th BRICS summit, the first meeting of the leaders of emerging economies which collectively account for over a quarter of global GDP, on the African soil.
The details of the Bank, widely seen as a BRICS counterpoint to the hegemony of the West-dominated IMF and World Bank, are expected to be announced at the plenary session of the summit.
The BRICS Development Bank, which is set to create jitters in Western capitals, is a potential game-changer in the BRICS’ larger strategic objective of harnessing the South’s growing economic heft to democratize global institutions of governance to accommodate surging aspirations of developing countries.
While the modalities of the Bank remain a work in progress, there is a near-consensus on the core role of the Bank as a catalyst in infrastructure-building in Africa and in the global south.
South African President Jacob Zuma, the host of the Durban summit, has struck an upbeat note about the prospects of the Bank, which is poised to be the show-stealer at the fifth BRICS summit.
“Brics is not a talk show. It is a serious grouping,” Zuma told reporters March 25 at the presidential guesthouse in Pretoria. “We are able to discuss things and take decisions. If, for example, we talk about the eminent establishment of a development bank, we discussed this a while ago and immediately charged our finance ministers to work on a modality. We are now ready to launch it,” he said.
Chinese President Xi Jinping, too, has voiced hopes for “positive headway” in establishing the bank.
The Bank is set to unleash a wave of enthusiasm in Africa, a continent that has defied stereotypes to become a symbol of economic resurgence and the ineluctable African optimism.
“The funding requirements of Africa are far too huge. We need more funding institutions, and a bank from the Brics block would be strategic and complement institutions such as the World Bank and the International Monetary Fund,” said Patrick Dlamini, CEO of the Development Bank of Southern Africa (DBSA).
It’s not clear yet whether issues relating to governance and functioning of the Bank have been resolved. Indian officials say that governance structure and voting rights in the Bank will be decided over the next one year. These issues may take up to one year to decide and the bank may take two to three years to become functional. The Bank, therefore, can be expected to become functional only in 2015-16, and will require close-knit solidarity and congruence of perspectives among BRICS countries to make it work.
Official privy to latest developments point out that power games to control this pioneering South-South institution are set to intensify in days to come.
China, Asia’s second largest economy with $3.2 trillion in foreign exchange reserves, has already upped its game and is trying to assert its preeminence as the most powerful economy in the grouping. The negotiations on modalities of the bank will, therefore, require some deft and focused diplomacy in the months to come.
India is understood to be in favour of the initial capital of $50 billion to launch the fund, with equal contribution of $10 billion from each BRICS country. China is pitching for $100 billion corpus fund and has indicated that it is ready to pay up a part of the share of countries like Brazil and South Africa who can’t afford a huge funding commitment. India is expected to oppose the Chinese proposal as a bigger share of funds will give China greater voting rights in the new Bank and will provide extra leverage to Beijing to set the Bank’s agenda.
India, Asia’s third largest economy, is expected to be proactive in shaping the modalities of the Bank and will ensure that Beijing’s ambitions do not subvert the core principle of equity and the larger strategic objective of democratization of international institutions of economic governance. There is a growing consensus that the new Bank should not replicate the asymmetries of the Bretton Wood institutions, the World Bank and the IMF. A mid-way solution could entail all BRICS countries putting in equal contributions with the same quota of votes, but leaving the option open to advanced economies to plug the shortfall. In this scenario, while the BRICS collectively will put in 70-80 per cent of votes and funding, the outsiders could be allowed to contribute funds.
Despite some differences on the details of the Bank, all BRICS countries are more or less on the same page over the core function of the Bank. The Bank’s key role will be to spur infrastructure-building and development in the emerging countries and the larger global South. More important, the Bank will act as a defender and guarantor of interests of developing countries that are often at the mercy of wealthier and powerful countries of the North.
(The writer is Editor-in-Chief of India Writes, www.indiawrites.org, an online magazine-cum-journal focused on international affairs, the India Story and promoting dialogue among cultures.)
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- Manish Chand is Founder-CEO and Editor-in-Chief of India Writes Network (www.indiawrites.org) and India and World, a pioneering magazine focused on international affairs. He is CEO/Director of TGII Media Private Limited, an India-based media, publishing, research and consultancy company.
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