The BRICS option

Whether a new set of financial institutions initiated by the middle-income BRICS countries will offer a viable alternative to the IMF and World Bank remains to be seen.

At a leader-level summit in late March, Brazil, Russia, India, China and South Africa (BRICS) announced their preliminary agreement to set up multilateral institutions for both development finance and emergency financial support. Progress was faster than expected, largely due to BRICS anger at the failure of rich countries to sufficiently include them in governance of the World Bank and International Monetary Fund (IMF), or adequately respond to their calls for greater lending. South African Finance Minister Pravin Gordhan told journalists IMF and World Bank reforms “are inadequate in terms of reflecting current economic and other realities around the world”.

The so-called BRICS Bank will focus on infrastructure finance. However, details on the exact financial contributions, location and governance structure of the bank were discussed but not agreed. An agreed Contingent Reserve Arrangement (CRA), to pool foreign exchange reserves among the BRICS countries, was announced to be $100 billion and is not expected to have any formal link to the IMF.

The BRICS countries have not yet decided whether either institution would have a mandate to operate outside their own five countries. These details are to be decided over the next year, with leaders meeting again in September on the sidelines of the G20. A full agreement is expected in 2014 and the institutions to be operational by 2015.

Competition or cooperation?

For years civil society organizations have been encouraging the creation of regional financial institutions as rivals to the Bank and Fund, but these new initiatives may not really be in competition with the Washington-based lenders. In the run-up to the summit, the Brazilian Minister of Development, Industry and Foreign Trade Fernando Pimentel said: “The objective of the BRICS development bank ... is not to rival any other organization but actually to offer alternatives.” The World Bank formally welcomed the BRICS announcement, saying it “stand[s] ready to work closely with the new bank to end poverty and build shared prosperity throughout the developing world”.

These notes chime with the thinking of the United Nations Development Programme (UNDP)’s mid-March Human Development Report, which argues for “coherent pluralism” instead of “a false choice between globalism and regionalism”. It went on to argue: “New institutions will be more effective if they work in concert with existing regional and global institutions, filling gaps in funding and investment.”

The CRA, on the other hand, looks to be a more direct challenge to the IMF. Kavaljit Singh, of Indian NGO Madhyam, agreed: “In a western-dominated financial world, the idea of a BRICS reserve fund looks very exciting and promising. In a post-crisis world full of financial risks and uncertainties, the reserve pool could potentially reshape the global financial architecture of the 21st century.”

Demanding a third approach

Civil society reactions to the BRICS announcement have overall been sceptical and cautious. Alfredo Tjiurimo Hengari of the South African Institute of International Affairs was doubtful, writing in the newspaper Windhoek Observer that the BRICS group “is not independent from existing global power structures. It seeks to reinforce these power structures through a voice that is not substantively an alternative, but merely one of continuity.”

Dorothy-Grace Guerrero of Bangkok-based NGO Focus on the Global South said “social movements and activist academics are increasingly wary that the economic model [China] is advancing is the same unsustainable and unjust paradigm that facilitates accumulation of wealth by a few while resulting in the dispossession and pauperization of the already marginalized and powerless.” Bobby Peek of South African NGO Groundwork suggested that civil society groups “build a strong criticism that demands equality instead of new forms of exploitation”.

Carlos Tautz of Brazilian NGO Instituto Mais Democracia said: “For the first time in history, civil society organizations have the opportunity to monitor an international financial institution from its birth.” Tautz summarized demands being made of the new institutions: “1) a wide public information policy, including norms of transparency; 2) international accountability criteria; 3) prior to disbursements, an open process for discussion and decision-making with people potentially affected  by  the projects; 4) the deliberative decision-making space to include civil society organizations of the countries impacted; and 5) a norm against  any  violation of human rights.”                                              

This article is reproduced from the Bretton Woods Update (No. 85, March/April 2013), which is published by the London-based Bretton Woods Project (www.brettonwoodsproject.org).

Third World Economics, Issue No. 544/545, 1-31 May 2013, pp 22-23