Quite a symbol: 70 years after the Bretton Woods conference, which gave birth to the IMF and the World Bank, the sixth BRICS summit (Brazil, Russia, India, China and South Africa) gave birth, on July 15, 2014 in Fortaleza, to a Development Bank and a Reserve Fund. A decisive step in the refoundation of the international economic and political order?
With a starting capital of $100 billion each, the two new institutions will have the particularity of granting loans without conditionality and of operating on the basis of a decision-making system in which each member state has equal voting rights. The BRICS have thus taken care to distance themselves from the much-criticized practices of the IMF and the World Bank, whose loans are conditional on macroeconomic and sectoral reforms and whose operation is based on a censal democracy (the more a member state contributes, the more voting rights it has, with a veto right for the United States).
Announced in the spring of 2013, the idea of creating a BRICS Bank and Fund did not take long to materialize. The last remaining differences between China and India have been resolved by a compromise: the headquarters of the BRICS Bank will be located in Shanghai, while India will hold the presidency for the first five years. Each of the BRICS will contribute $10 billion to build up a capital of $50 billion, which will be doubled by the time the Bank becomes effective in 2016. While the priority of the loans will be to finance infrastructure in the BRICS, other developing countries may also eventually participate and benefit – Argentina was the first country to officially apply.
The reserve fund, officially called the Contingency Reserve Arrangement (CRA), will also have a starting capital of $100 billion, of which China will contribute $41 billion, India, Brazil and Russia $18 billion and South Africa $5 billion. This Fund will aim to curb balance of payments crises by granting short-term credit lines in the event of financial imbalances, and will have the possibility of borrowing on the markets to increase its lending capacity.
New avatar of South-South cooperation
The creation of a BRICS Bank and Fund is a new illustration of the rise of South-South cooperation, which is itself a reflection of the « tipping point » of the world. Since the early 2000s, more than half of the world’s economic growth has been produced by developing countries, particularly high-growth countries such as China, the other BRICS and East Asian countries. This phenomenon has obviously been exacerbated by the economic recession experienced by industrialized countries following the 2008-2009 global crisis. This has resulted in ever-increasing South-South trade, both in terms of development assistance and in terms of trade and private investment.
More than half of world trade is now South-South and nearly 40% of foreign direct investment in the world is by companies from the South – in both cases, the BRICS account for more than half of these flows. It is the increase in China’s trade with developing countries that has been most impressive: between 2000 and 2012, trade between China and Africa increased twenty-fold and between China and Latin America twenty-two-fold! China is now the largest trading partner of 128 countries in the world!
The BRICS Bank and Fund is thus part of a broader panorama in which the emerging powers of the South are claiming more weight in the international system and putting an end to the Western monopoly on development financing. Several initiatives have been taken in the past by emerging countries: As early as 2000, the East Asian countries (ASEAN+3) created a regional reserve fund, called the « Chiang Mai Initiative », which was presented as a regional complement to the IMF; in 2007, the Latin American countries announced the creation of a Bank of the South, which never came into force; from 2009 onwards, the BRICS joined forces to demand a reform of the voting rights of the IMF and the World Bank, with a view to achieving a 50/50 split between developed and developing countries. While a modest reform of voting rights was achieved at the World Bank, this was not the case at the IMF, following the refusal of the US Congress – even though the reform did not challenge the US veto right. Furthermore, the commitment made in 2009 by the G20 to end the tradition of giving the presidency of the World Bank to an American and that of the IMF to a European has not been respected.
It is in this context that the BRICS decided to create their own Bank and Fund. At the same time, China has announced the creation of an Asian Infrastructure Investment Bank, also with a starting capital of $100 billion, to compete with the Asian Development Bank, a subsidiary of the World Bank controlled by Japan and its Western allies. India has been invited by China to become a founding member of this new regional development bank, while in Latin America, the Development Bank of Brazil already provides more loans than the World Bank in the region.
Reflecting an increasingly multipolar world order
After seeking to reform the policies and decision-making of the IMF and the World Bank, the BRICS decided to create their own institutions, which they present as complementary rather than rivals to the Bretton Woods institutions. It is obviously too early to determine whether these new institutions will prove effective and whether they will make a lasting contribution to the construction of a new international economic and financial order.
The BRICS is a very heterogeneous group of countries: countries from different continents, authoritarian regimes and democracies, secular states and former European colonies, permanent members of the UN Security Council and others who claim such a seat, increasingly industrialized economies and others that continue to depend on raw materials … Some point out that the BRICS lack the glue to maintain real common projects that can draw the contours of an alternative world order.
Time will tell whether the results of the two new BRICS institutions will live up to their ambitions, but one thing is certain: despite their many differences, the BRICS have in common that they are emerging regional powers with ambitions to build a new multipolar world order. This is the conclusion of the European Commission’s Directorate General for Research’s Prospective Report on the World in 2025: « From 1945 to 1990, the world was bipolar (USA-USSR). From 1990 to 2008, the USA was the world’s power centre. From 2008 to 2025, it is likely that the world will become truly multipolar. (…) The new geopolitical situation that is taking shape with the rise in power of emerging countries will probably result in a new organization of international relations.
In other words, the time when the United States and Europe could dictate to the rest of the world is over. It is thus a cycle that began at the dawn of Modern Times, after the Europeans discovered the New World more than five centuries ago, that seems to be closing.
Source: carte blanche published in Le Soir on July 25, 2014.
https://www.cncd.be/La-Banque-des-BRICS-nouvel-avatar?lang=fr