Thursday, 7 March 2013

Is it possible to be tired of talking about the BRICS bank before it even exists?

By Noshua Watson

The BRICS Development Bank will likely be announced at the BRICS Summit in two weeks, with an initial capitalisation of US $50 billion. The work of former IDS Professorial Fellow Stephany Griffith-Jones on regional development banks sheds some light on the BRICS bank’s potential. RDBs can approve loans faster and at lower rates, finance infrastructure projects over longer timeframes, lend in local currency, provide guarantees that attract private financing, and help provide regional public goods, all with lower conditionality too! But what is the BRICS bank parallel? What externalities will be generated and who will benefit?

After all, the BRICS are an artificial grouping based on similar economic power and the desire to translate that economic power into international political influence. The hope is that the BRICS bank will complement existing global financial institutions and create a space for constructive conversations about South-South cooperation and sector issues like health, food security and conflict. Another possibility is that the BRICS bank, like RDBs, can provide counter-cyclical lending and mitigate the pro-cyclical effects of financial markets. The development benefits of increased South-South trade between the BRICS and through the BRICS as gateway countries also shouldn’t be underestimated. Lending in local currencies will help develop local capital markets.

Within the bank, the focus will need to be on good lending practices and providing technical assistance. Given the greater lending risk, but also the difficulty of enforcing cooperation between the BRICS, the bank will need higher capital base requirements and reserves. Civil society organiser Carlos Tautz points out that the burden of democratic participation will also be on the bank, with a responsibility to widely provide public information, hold participatory project approval processes, align with human rights conventions and adhere to international accountability criteria.

The greatest risk is that the BRICS bank will emerge directly into irrelevance. Recognising the importance of new powers and South-South trade is not the challenge that aid institutions face. Kharas and Rogerson rated a number of aid agencies on how prepared they are to deal with geographic shifts in the populations of the poor, private sources of aid, South-South cooperation and trade and climate change disruptors. How does the BRICS bank rate? Are they ready?

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