BRICS can be alternative lender
Four years of inaction on an agreement to give China and other emerging economies a bigger say in the International Monetary Fund have spawned an alternative international lending institution. The BRICS nations - Brazil, Russia, India, China and South Africa - have signed off on a new development bank and reserve fund to provide financing to emerging markets and a counterweight to US dominance of the IMF and World Bank.
A summit of BRICS leaders in Fortaleza, Brazil, agreed on Shanghai as the new bank's headquarters, which reflects China's standing as a creditor nation and the key role of an increasingly internationalised yuan. Each country will contribute equally to initial capital of US$50 billion, but China will provide the lion's share of US$41 billion towards a US$100 billion reserve fund to fight financial crises.
The summit of the disparate BRICS group, attended by President Xi Jinping , agreed on a new level of economic cooperation aimed at meeting the development finance needs of fast-growing emerging economies. The bank is modestly capitalised in terms of the vision at this stage. But it is already being seen as a rival to Western institutions that are not always accommodating to the developing world. That said, it will face its own internal challenges of geography, economic inequality, and tensions between the three northern hemisphere partners.
China will bear a large share of the burden of making another high-powered multilateral institution work coherently in an overcrowded sphere prone to overlapping, duplication and conflicting interests. Beijing also needs to reconcile the role of the new bank with other key interests, including China's Export-Import Bank and its support for the potentially influential Asian Infrastructure Investment Bank. The changing global economy should prompt existing institutions, including the Asian and European development banks, to adapt to evolving development needs. If the BRICS partners can overcome their internal challenges the new bank could soon provide a viable alternative.