Voice of America (Washington, DC)

12 August 2014

Africa: BRICKS Launches New Development Bank

Beijing — In July, nations known as the "BRICS," Brazil, Russia, India, China and South Africa, announced the creation of a new, $100 billion development bank (NDB). The project is aimed at lending money to developing nations for investments, much like how the American and European-backed International Monetary Fund (IMF) and World Bank operate.

Liu Haifang, a professor at Peking University's Center for African Studies, said the bank will provide developing countries with more options for financing.

"Finally they got some alternative sources to get funding for infrastructure and they do not come with these conditionalities. So it for me is very symbolic in terms of political meaning, it means the whole world order is not unipolar. It is not a west centered world. It is a multipolar world. African countries trying to get funding do not have to only follow the rules of the developed world," said Liu Haifang.

The "rules of the developed world" Liu refered to are the conditions that the IMF sets forth in exchange for access to loans. Instead of putting up collateral, governments must follow economic policies prescribed by the IMF.

BRICS nations have 40 percent of the world's population and 20 percent of global economic output. However, they have been blocked from gaining greater voting rights at the IMF, largely because of opposition in the U.S. Congress.

Some observers see the new bank as a competitor to the IMF and World Bank that will provide funds to developing countries to build infrastructure and shore up their economies to better handle crises.

Reserve fund

The BRICS nations also plan to establish a reserve fund to which China will make the biggest contribution -- $41 billion. Matt Ferchen of the Carnegie Tsinghua Center for Global Policy said the fund is a concrete form of multi-lateral cooperation and despite China's growing economic power, it wants to be seen as an egalitarian player in the bank's establishment and financing decisions.

"China has this rhetoric in terms of its foreign policy and especially as it relates to China's engagement with other developing countries, that China won't interfere in other countries' domestic politics, that China respects the domestic, economic and political systems of other countries, in a way that they want to be seen as different from the World Bank, the IMF, or countries like the United States," noted Ferchen.

The New Development Bank is expected to be based in Shanghai and have an Indian citizen as its first chief executive. Skeptics say the bank faces challenges over whether the creditor nations will use the institution to promote their own national interests.

But with China's growing economic might, many expect it could become a powerful international force. It could also help promote other currencies, such as China's yuan, as an alternative to the present global finance system, dominated by the U.S. dollar.

Sanctions workaround

Akshay Mathur, Head of Research and Geoeconomics Fellow at Gateway House, said the new bank could help developing powers get around sanctions imposed by the West.

"When more and more geopolitical events take place, such as, Iran, or Ukraine, and you know, the more dollars in use, the more control the U.S. has over the financial architecture. But in a multi-currency architecture the U.S. will lose that grip and other countries will remain in control of their currency so that can continue to conduct trade without being sanctioned," Mathur explained.

Parts of the new bank still must be approved by local legislatures. Officials say they hope to make the first loan in 2016.

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