Is it time for a BRICS Development Bank?


ImageHandler ashx

As the Fourth BRICS Academic Forum in New Delhi nears, new ideas about how to shape the future of the group surge almost daily. Interestingly, many of these ideas come from thinkers based in Brazil and India (and South Africa, to a lesser degree), but rarely from those in Russia and China. This may have two reasons. First of all, the lack of freedom of speech in Russia and China make it more difficult to think out loud and make innovative political proposals about any topic. Secondly, Russia and China are institutionally established, so they do not see the BRICS as a vehicle to attain great power status. Brazil and India, on the other hand, have used their BRICS membership into a larger narrative of why they deserve a seat on the high table. A similar phenomenon is visible in South Africa, which long dreamed of BRICS membership and actively campaigned for it.

As the crisis in Syria shows no sign of abating, some have argued that the BRICS summit may be overshadowed by the debate about how to deal with the Assad regime. The Brazilian government has been the most proactive in this regard, and it may seek to include the recently developed concept it calls the "responsibility while protecting" into the final declaration. Yet considering Russia's special interests in Syria, and China's aversion to rock the boat on such a fundamental issue, any significant progress in the security realm seems unlikely.

Perhaps aware of these difficulties, recent proposals have focused on economics. Since Jim O'Neill created the BRICs more than ten years ago, its member countries have consistently grown faster than developed nations. In 2012, economic growth is expected to stand at 3 percent in Brazil; 3.3 percent in Russia; 7 percent in India; 8.2 percent in China; and 2.5 percent in South Africa. U.S. growth this year will be 1.8 percent while the euro area will shrink by 0.5 percent (all IMF figures). Add to that Europe's and the United States' unwillingness to include emerging powers into the existing financial structures, such as the World Bank and the IMF, and it is perhaps unsurprising that the idea of a BRICS Development Bank has growing gained support among the BRICS Finance Ministers.

Little has been decided about the multilateral bank that would be exclusively funded by developing nations and finance projects in those countries, yet the creation of such body does no longer seem impossible. During last year's BRICS summit in China already, setting up a common development bank or fund had been mentioned by participating diplomats.

In order to succeed, the BRICS must assure that the entity does not openly position itself against established institutions such as the IMF and the World Bank. Brazil in particular is unlikely to commit to any explicitly "anti-Western" organization (it has agreed to join Chavez' ideologically tinged Bank of the South, but mostly to keep an eye on the Venezuelan leader). Yet such rhetoric is easily avoidable, and member countries would be wise to continue to engage in the Bretton Woods institutions as these are unlikely to fade in the near future.

Creating a multilateral development bank is fraught with difficulties. Yet if designed properly, a BRICS Development Bank could indeed become an effective tool to serve emerging powers' needs, while bypassing restrictions and political pressures from US- and Europe- funded banks. At the same time, it would symbolize an important step towards institutionalizing their cooperation.

Lastly, to keep the BRICS from setting up a separate body, President Obama could try to appoint someone from an emerging power as World Bank President and thus reengage the BRICS' in the Washington D.C.-based institution. In this case, the debate about the BRICS Development Bank would have an unexpected but welcome early payoff.

Read also:

Book review: “Brazil on the Rise: The Story of a Country Transformed” by Larry Rohter

Does Kim Signal World Bank Changes?

Debate about BRICS Development Bank advances