The so-called BRICS — a loose economic association of middle-income countries Brazil, Russia, India, China and South Africa — have now put on paper their agreement to establish a new multilateral development bank, which some observers contend could sap influence from the Western-led World Bank Group of international financial institutions.
The BRICS bank — or “New Development Bank” — will begin with a startup capital of $50 billion, drawn equally from contributions by its founding members. The bank is expected to expand to a total capital pool of $200 billion “for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries,” according to the charter agreement signed by each nation’s head of state Wednesday in Fortaleza, Brazil.
The new bank is seen by many as a sign of waning Western influence in development finance, and as a reaction by middle-income countries against a history of structural adjustment requirements, reform conditions and other controversial terms that have accompanied infrastructure and debt relief packages from the world’s largest international financial institutions.
So how does the current head of the world’s largest multilateral lender feel about the BRICS bank?
“Our position on the other potential banks is that we welcome it,” said Jim Kim, president of the World Bank Group, at a media briefing last month.
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“This is a question of arithmetic,” he said, pointing to the tremendous infrastructure finance needs that exist around the world. “If you look at Africa today, they have about $100 billion a year in new infrastructure needs. If you look at the BRICS countries, they have a trillion across the five countries a year in infrastructure needs.”
Kim noted that the World Bank has 70 years of experience on any new entrant into the infrastructure finance market, and also emphasized that new development finance banks will face serious questions about their willingness to establish safeguards against social and environmental impacts.
“Safeguards is a major issue,” he told reporters. “We stand ready to help them all with any kind of knowledge or expertise we have because there fundamentally is a need for that kind of infrastructure financing.”
For their part, the founders of the New Development Bank noted in their agreement they intend to “complement” the efforts of other multilateral and regional financial institutions and “cooperate with international organizations and other financial entities.”
The World Bank is currently proceeding through the first month of its own sweeping reform process, which Kim hopes will make the institution more effective at moving its expertise and resources around the globe.