New $100 bn BRICS bank opens in China to challenge US-led lenders

Mangalore Today News Network

July 22, 2015: The new Brics development bank formally launched in Shanghai on Tuesday, with representatives from Brazil, Russia, India, China and South Africa envisioning a nimbler, more responsive alternative to institutions such as the World Bank.

 

The inauguration of the lender, officially called the New Development Bank, comes less than a month after the launch of the China-led Asia Infrastructure Development Bank, which similarly aims to create a parallel global investment institution in which developing countries have greater influence.

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Although it has only five founding members compared with the AIIB’s 57, the NDB will begin with initial capital of $100bn, the same as AIIB. The five countries all have equal voting shares.

“We believe the funding needs of Asia in the infrastructure space are so vast that there is easily space for the two of us and, indeed, many more lenders to participate,” said KV Kamath, NDB president and former chief executive of ICICI, India’s largest private sector bank.

But unlike AIIB, NDB will not limit itself to Asia. Excluding South Africa, the four original Bric countries comprise more than 40 per cent of the world’s population, a quarter of the world’s land area and more than 25 per cent of global gross domestic product.

Mr Kamath and Lou Jiwei, Chinese finance minister, were careful not to criticise the World Bank, Asian Development Bank and other incumbent institutions on Tuesday. But they made clear that they believe NDB can improve upon existing norms.

“This bank will place greater emphasis on the needs of developing countries, have greater respect for developing countries’ national situation, and more fully embody the values of developing countries,” said Mr Lou. “Development is a dynamic process. There’s really no such thing as so-called ‘best practices’.”

Mr Kamath pledged to move the bank “from best practices to next practices”, adding that traditional development lending was often “too rigid, inflexible, and slow”.

“From a borrowing country’s perspective, these become huge deterrents to growth,” he said. The bank aims to have the first set of loans disbursed by April next year.

In a recorded message, Lord Nicholas Stern, professor at the London School of Economics, recalled how he and former World Bank chief economist Joseph Stiglitz conceived the idea for the Brics bank at Davos in 2011 as a way for emerging markets with large trade surpluses to recycle those savings into productive investments in their own countries.

The idea was first formally discussed at a summit of Brics countries the following year, and articles of agreement were signed last July.

Analysts agree the economic logic is sound, but some warn that geopolitical tensions between the Brics could interfere with the NDB’s smooth operations. They note that while the AIIB officially launched less than two years after Chinese President Xi Jinping first proposed the idea in October 2013, the Brics bank has taken more than four years to start operations.

One source of delay was negotiations surrounding where to locate the NDB’s headquarters. Chinese leaders hope the bank’s presence in Shanghai will boost the city’s ambitions to become a global financial centre by 2020.

But Mr Kamath said he had seen no sign of political infighting.

“If you’ve taken the views of all member countries, then decided on what is do-able and what is not do-able, that should not be an issue,” he said.