Brics bank will ‘not be a rival’ to the West

2013-03-31 10:00

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Consensus seems to be that the new developing world financier will look to complement the work of the World Bank and the International Monetary Fund, instead of competing with them

The fifth Brics (Brazil, Russia, India, China, South Africa) Summit in Durban wrapped up with widely expected economic agreements to, at some future date, create miniature versions of the World Bank and the International Monetary Fund (IMF).

Critics and supporters have greeted the Bricsbank as an attack on the two much-maligned Bretton Woods system institutions, but both the official declaration and the Brics countries’ recent actions suggest there is no intention to sideline the Western world’s development system.

According to the eThekwini Declaration, the $100?billion (R923?billion) “contingent reserve arrangement” will “complement” the IMF while the infrastructure bank will “supplement” the rapidly growing array of international and regional financiers, including South Africa’s Industrial Development Corporation and the Development Bank of Southern Africa.

The former recently announced that it will increase its lending capacity threefold, while the latter has launched an international subsidiary to massively expand South African lending to other African countries.

Like the Bricsbank and the World Bank, most of this new lending capacity will be financed by bonds, not taxpayers’ money.

Last year, the richer Brics countries went out of their way to contribute significantly to the IMF emergency fund to save Europe from financial collapse, advancing their campaign for a larger vote based on their increasing economic power (see sidebar).

In this week’s declaration, they call for an “ambitious” replenishment of the World

Bank’s International Development Association (IDA) – the donor-funded affiliate of the bank that deals in grants and concessionary loans to poor countries. India remains the largest debtor to the World Bank and the IDA, and is simultaneously trying to have its credit limit increased for the second time in three years.

India’s exhaustion of its maximum World Bank credit was one of the major reasons the Bricsbank was suggested at last year’s summit in Delhi as the “second-best” way to keep the infrastructure loans flowing, say John Kirton and Caroline Bracht of the Canadian Brics Research Group in their research note on this week’s summit.

According to them, a “global division of labour” is likely.

The Brics bank will probably gravitate towards “high-risk, high-cost, lumpy capital physical infrastructure projects” while the World Bank does “safer, less expensive social investments in soft human capital infrastructure such as education and health”.

The “main idea” behind the Bricsbank is to mobilise “more appropriately structured and priced long-term infrastructure”, says National Treasury spokesperson Jabulani Sikhakhane.

The capital will initially come from the Brics that have surplus resources and be lent out in other Brics countries.

Over time, the capital and the funded projects will expand outside the club, he says.

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