Info Service on Finance and Development (Apr13/03)
17 April 2013
Third World Network
59, 12 April 2013
[SOUTHVIEWS is a service of the South Centre to provide opinions and
analysis of topical issues from a South perspective]
Bank: Doing development differently?
prospective new financial architecture being set up by the BRICS countries
promises to reform and improve development finance for the world.
countries came together at the beginning of April to grab international
headlines over how they might, as a group, change the world: Brazil,
Russia, India, China and South Africa (Brics).
And they would do so in the most tried-and-tested way imaginable:
financially, as a single economic entity. As a bloc Brics may effect
change on a global scale, but the grouping would still do so in the
traditional way of flexing economic muscle.
The annual Brics summit held during the week in Durban, South Africa,
focused on what that muscle can do – challenge the World Bank and
the International Monetary Fund in the way development finance is
conducted, as well as the Western dominance that has prevailed in
both Bretton Woods institutions.
Those institutions were never meant to be that way, of course, as
a reading of their founding texts would show. But any initial magnanimity
soon gave way to self-interest: US and European dominance of the World
Bank and the IMF respectively was to be a Western “consensus” imposed
on the world like a global neo-colonial regime.
Interestingly, the original Bric as both a term and a grouping originated
not in any of the initial four countries or the developing world,
but in the US itself.
None other than Goldman Sachs’ Asset Management Chairman Jim O’Neill
coined the term in 2001 for those countries he believed would outpace
the US in total GDP by 2020.
At the turn of the century Brazil, Russia, India and China were merely
regarded by some as emerging economies developing under their own
After O’Neill’s coinage they held their first summit in 2009 and invited
South Africa to join them a year later, and Brics was born.
Since then, Brics as both concept and entity has had vigorous growth
and a vibrant youth. It compares favourably with the IMF and the World
Bank, both pushing 70 years and weighed down by limiting conditionalities
and outmoded economic ideology.
Both institutions typically adopt a cold, mechanistic approach to
development that prioritises market interests over human needs. Their
Western bias is also a throwback in a 21st-century world of shared
global interests and aspirations, and a world in which Western economies
themselves are in trouble.
In contrast, Brics as a bloc of emerging economies serves as a bridge
between the developing Third World and the developed First World.
It seeks to narrow that yawning chasm by focusing on reviving global
growth and ensuring macroeconomic stability.
Those virtues that had once been the preserve of the West have become
its elusive goals. The “developed” and the “emerging” (mostly, once
“developing”) economies have traded places.
The new global bank that Brics wants to establish is expected to emphasise
infrastructure development and trade. The first represents solid investment
in development for the future, and the second works as an economic
multiplier for further growth.
On paper, Brics countries account for almost half the world’s population
and just over a quarter of world trade. But more important than these
bare figures is how Brics economies have been driving global growth
for years, as acknowledged by the World Bank itself.
The idea for a new global bank arose only last year. So how the measured
progress at the Durban summit is perceived depends at least as much
on the observer: is the glass half-full or half-empty?
Some of the most difficult decisions, such as financing modes, remain
unresolved. Its primary purposes like the operation of funds in project
financing and a contingency fund as crisis buffer will take more time
to work out.
Pessimists may cite how the absence of agreement on even the quantum
of fund contribution from each country bodes ill for Brics. Basing
the contribution on economic capacity makes sense, but concerns were
expressed over how that would inevitably make a hulking China dominant.
A standard sum of US$10bil (RM31bil) from each country as seed capital
was then considered, following a Russian proposal, but the final decision
was left until later.
Optimists would say that far from weak indecision, this showed an
openness about not wanting any country to dominate, with agreement
on equality with a fair and manageable quantum for all.
However, realists may say that in such financial matters China would
still eventually dominate. To that, it can be said that dominance
by a single country was never a problem before, given the prominent
US role and influence in the World Bank and the IMF.
this point some may say it was precisely because of single-power dominance
that had compromised the work of the Bretton Woods institutions. It
might then be observed that a new global bank dominated by China would
only balance the World Bank (and the IMF), which it would complement
rather than replace.
Some observers may see crippling incompatibility in the different
political systems within BRICS.
But such diversity need not be an obstacle, particularly when all
countries now work within a global capitalist system.
President Vladimir Putin, often cited in Western circles as a modern
incarnation of the Soviet bear, even insisted that a new global bank
“must work on market principles only.” And “communist” China is not
only a major and enthusiastic player in global markets, but – to former
British foreign minister David Miliband – has even acted as a saviour
of Western capitalism.
What worries fans of the IMF and World Bank is not how a new global
bank as competitor will “steal their business,” but how it may force
both to be more democratic and more sympathetic to the developing
world. Who else but those currently dominating them in Washington
and Brussels would object?
Japan as an emerging economy itself decades ago had its chance to
forge a new alternative in international finance with the Asian Development
Bank, but blew it.
The former coloniser in Asia seeking to make good in its post-war
period, with US partnership, soon settled into establishment mode
alongside its Bretton Woods equivalents. A new global bank established
by BRICS will be a welcome addition to the existing financial institutions.
Its continental and political diversity would also make a slide into
betraying its noble purpose more difficult.
Late last year, Brazil suggested that the proposed bank should be
modelled on Asean’s Chiang Mai initiative.
This is a time for a sharing of experiences when each can learn from
the rest, not of jealous exclusion and unfounded fears of rivalry.
In time, perhaps even the World Bank and the IMF can find it in themselves
to accommodate and welcome new financial institutions operating on
At least that would help them return to their initial noble calling.
Bunn Nagara is a senior Malaysian journalist and a columnist in the
Malaysian newspaper The Star, in which this article was published.