Attention all members of the global development community: there’s a new player in town.
After almost three years of negotiations, senior officials from the world’s five largest emerging economies Brazil, Russia, India, China and South Africa — collectively known as the BRICS — finally unveiled Tuesday a new multilateral bank.
Called the New Development Bank, the body is seen as a potential rival to the influence of long-standing institutions such as the World Bank and the International Monetary Fund, among others.
The long-awaited Shanghai-based bank is the second multilateral institution slated to start operations next year, together with the Beijing-based Asian Infrastructure Investment Bank. Both aim at providing additional funding to infrastructure and other development projects globally “while complementing the existing efforts of multilateral and regional financial institutions for global growth and development.”
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The NDB, considered as “an alternative to the existing U.S.-dominated [institutions]” will boast initial capital of $50 billion ($100 billion initial authorized capital), which will be equally shared by the BRICS nations. China, meanwhile, has confirmed it will shoulder 41 percent of the $100 billion-worth reserve fund known as the Contingency Reserve Arrangement, along with its initial veto-wielding share in the Beijing-based AIIB.
Leadership of the NDB will be on a rotating five-year basis, with the inaugural presidency handed to K.V. Kamath, an Indian banker with a wealth of experience working in the private sector and at multilateral institutions including the Asian Development Bank. It is expected that the next two presidents will come from Brazil and Russia.
Chinese Finance Minister Lou Jiwei said in a statement that the BRICS bank will work closely together with AIIB — which also boasts $100 billion in capital — and will “help alleviate infrastructure bottlenecks in investment and financing in emerging markets and developing countries to promote sustainable development,” while promoting “governance reforms [and] enhancing the overall strength of the international multilateral system.”
This, according to an expert approached by Devex, signals a new era of development cooperation that is inevitable, timely, and, in a way, “natural.”
“I’m optimistic that we are going to get to a very different era when it comes to development cooperation. We’re at the beginning of the end of aid-led, Western-funded, post-colonial development,” Dhananjayan Sriskandarajah, secretary-general of Civicus, told Devex. It could, he said, be compared to the rise of the Bretton Woods institutions more than six decades ago, when the world’s geopolitical map and development landscape changed irrevocably.
“It’s not just about the rich giving charity to the poor through aid. It is about new forms of cooperation,” Sriskandarajah said.
While a replenishment of development commitments have been made during the third International Conference on Financing for Development in Addis Ababa, Ethiopia, last week, the chief of the Johannesburg-based organization expressed his disappointment that the “rich countries are either too broke or too unwilling to fulfill their commitments on aid” and lamented a lack of “new money.”
“There wasn’t new money. There wasn’t substantial money being offered to support development projects,” he explained. “You know, here we are decades after the 0.7 percent promise [but] the average OECD-DAC member is still just [earmarking] 0.2 percent of GNI [to aid].”
This is the kind of gap that institutions such as the BRICS bank can help to fill, with experts believing that the bank will quickly make a name for itself and establish a foothold in the international development sector. While actual operations are expected to start by the end of the year or early next year, the Shanghai-based institution is, in some ways, already — albeit slowly — changing the development game.
Insider sources claim smaller financial institutions in some regions of the world are already “changing gear” to attract this “new capital in town,” detecting a shift in momentum from West to East in terms of future development finance flows.
But how will the BRICS bank will fare and will it positively or negatively impact the global development finance scene?
“It’s hard to tell,” said Sriskandarajah. “The optimist in me sees these institutions usher in a new way of working and more meaningful partnerships in South-South cooperation. The pessimist in me does worry that these institutions will be just as much in the interest of donors and they’ll not live up to [international] principles.”
“I think the intent being shown by these countries is a good one and that intent is what underpins this new era.”
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