Monitor | BRICS bank will be a recipe either for moral hazard or redundance
The proposed lender of funds to promote growth in the emerging world sounds like a great idea at first, but we have seen the concept fail before
Among the overweening initiatives announced this week by the ill-assorted leaders of Brazil, Russia, India, China and South Africa was a pledge to set up a new BRICS Development Bank to finance economic growth in the emerging world.
On the surface, it sounds like an excellent idea. Emerging economies have long resented the dominance of the United States, Europe and Japan over the world's supra-national financial institutions, the International Monetary Fund, the World Bank and a clutch of regional development banks.
The IMF, World Bank et al are the tools of Western economic interests, politicians from the developing world complain. Their loans are invariably tied to onerous conditions aimed at opening embryonic markets to developed-world companies, to the ruin of local businesses. Their structures, with shareholdings dictated by seldom-revised assessments of economic output, mean the influence of the US and Europe over their culture and management is grossly disproportionate.
What the world needs, say the aggrieved politicians, is a new multilateral lender, established and run by developing countries and responsive to the real needs of emerging economies.
It sounds like a reasonable idea - so reasonable, in fact, that we've heard it all before. During the Asian economic crisis of the late 1990s, antipathy towards the IMF reached such heights that regional governments proposed setting up an Asian Monetary Fund to bypass the Washington-based institution.