All in all, we’re a huge Bric in the wall

2012-03-31 10:37

For the first time in five decades South Africa and other developing countries have carved themselves an alternative route to development and infrastructure finance.

It is a route that experts say is free of Western dominance and ideological preconditions set for sovereign countries.

Challenging the traditional international financing bodies – the World Bank and International Monetary Fund – Brazil, Russia, India, China and South Africa resolved this week to offer each other preferential loans and infrastructure assistance and lower the cost of trading and putting up infrastructure in emerging markets.

These developments severely challenge the institutional and ideological authority of the World Bank and the IMF.

These bodies have traditionally imposed structural adjustment programmes on developing countries, which many have argued have systematically impoverished African countries.

The funding body will offer not only a new model of financing infrastructure, but also fewer prescriptions.

“This development is welcomed by many other African leaders as it will support our priority infrastructure projects as well as trade and investment opportunities with our Brics partners,” said President Jacob Zuma.

“We welcome the decision to prepare a new Brics-led Development Bank for inclusive sustainable development projects,” he said, adding: “Such a bank has great potential to help us create good jobs in developing countries.”

The new bank will be welcomed by African countries – the continent has a $120-billion infrastructure deficit.

South Africa needs R1.1 trillion for infrastructure.

At the end of the meeting President Jacob Zuma said: “We are pleased that Brics leaders will continue to support Africa and South Africa’s comprehensive infrastructure development programmes.”

More than 50 South African companies and delegations, from the business organisations Business Unity South Africa and the Black Business Council, went to the trade relations workshop on the fringes of the Brics summit.

This represents the largest and most significant private sector participation by South Africans in a Brics summit since this country’s acceptance to the club of powerful emerging markets in 2010.

South African businesses across sectors such as manufacturing and construction are studying the trends and adjusting to new trade, financing and business changes.

While Western-dominated multilaterals tended to emphasise a “donor-recipient relationship”, the new Brics financing arrangements focus on mutual benefit and partnerships.

IMF Researchers Nkunde Mwase and Yongzheng Yang say that Brics financing is often evaluated in terms of cost competitiveness and completion time.

The focus is bilateral, meaning government-to-government. These loans tend to have shorter approval time than traditional donors, who place greater emphasis on the consultation process.

After years of “tied aid” and “structural adjustment policies” imposed by the World Bank and the IMF on developing economies in Africa, the new options are considered to be less prescriptive.

Enforced trade and investment liberalisation and a slew of macro-economic policy measures were prescribed by the “traditional” development finance institutions dominated by America and Europe which lead the World Bank and the IMF.

Zuma said “developing economies are under pressure to offer additional and unreciprocated access to their markets in industrial products and services in exchange for moderate reforms in agricultural protectionism. This is unfair, un-mandated and
anti-development.”

An IMF document that has been circulating in Brics circles in India this month says that Brics tend not to attach conditions on governance, economic policy performance, and institutional reforms to their cooperation.

It adds that conditionality has often been criticised as intrusive and weakening country ownership of reforms.

Developing countries have for years complained that the neo-liberal macro-economic policies forced on them as conditions for development finance were strangling their economies and stunting their development.

With Brics countries deciding to step up the pace of economic co-operation with each other by signing two currency pacts and agreeing to establish a new Brics bank, the era of prescriptive lending associated with the World Bank and IMF is in sharp decline.
 
The IMF document says that most of the Brics philosophies related to development financing can be traced back to the South-South Cooperation discussions, which emphasise principles of equality, solidarity and mutual development.

They have emphasised their relationship as development partners, not donors.

The document says: “These countries view this as part of the principle of noninterference in the international affairs and as a means of circumventing corruption. In contrast, traditional donors view policy conditionality on institution building and governance as central to ensuring efficient use of aid.”

The IMF says that the concentration of Brics financing in infrastructure could have large positive growth effects by addressing infrastructure deficits.

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