Does the world need another development bank?
Brazil, Russia, India, China and South Africa have signed an agreement to create the Shanghai-based BRICS development bank. The aim is to create an alternative to the Western-dominated International Monetary Fund and World Bank. Along with the new bank, the five nations have created a US$100 billion contingency reserve arrangement, which will be co-managed by their central banks.
But we already have the China Development Bank (CDB), which has been active in lending across the African continent, and the Brazilian Development Bank. There are also the Latin American Reserve Fund and the Inter-American Development Bank. Closer to South Africa, there is the African Development Bank, which has close ties with the CDB through the China-Africa Development Fund. In Asia, we have the Asian Development Bank. And then, there are the lesser known ones like the Caribbean Development Bank and the Islamic Development Bank.
The world clearly does not lack non-Western or regional development banks and the funds that come with them. The field is seriously crowded. There is bound to be duplication of effort and resources, leading to waste. The BRICS summit in Brazil said the bank would help "emerging and developing nations mobilise resources for infrastructure and sustainable development projects", presumably to bypass the need to appeal for help from the dreaded IMF and World Bank.
This seems an expensive way for Xi Jinping , Vladimir Putin, Narendra Modi, Dilma Rousseff and Jacob Zuma to thumb their noses at Western financial institutions. Otherwise, they and their countries have little in common. Will it make loans without too many draconian conditions, as the IMF and World Bank have done amid much criticism? If so, how does the new bank expect to be repaid? There are always dangers, not least to reputation, by lending with few strings attached, as China has learned over the years.
Still, the BRICS bank may be good news for Argentina, which is facing default after losing a court case in the US to hold-out creditor hedge funds stemming from an earlier debt restructuring.