When five states take steps to set up their own bank to mutually fund infrastructure projects within their borders, it might not seem like big news for countries outside their ranks.
But moves this week by the BRICS states -- Brazil, Russia, India, China, and South Africa -- to set up just such a new financial institution are being closely watched around the world.
The reason is that one of the BRICS members is China -- today the world’s second-largest economy. And many countries, both within and outside the BRICS grouping, hope the bank will be a way to tap China's vast financial resources.
Currently, countries gain access to international capital -- including Chinese -- through loans from the World Bank and International Monetary Fund (IMF). Both institutions, which provide loans to fund major infrastructure projects or stabilize economies that are in trouble, are based in Washington, D.C.
Now, the creation of a BRICS development bank could offer countries a way to negotiate for infrastructure loans much more directly with China, the major financial power of the BRICS group. Beijing and its partners appear to regard the bank as an alternative to the World Bank and the IMF, suggesting they want to invest in each other and possibly other emerging countries’ infrastructure projects much more directly.
"One of the things that countries like Brazil, China, India, [and] South Africa have in common is a kind of demand for the opening up, or democratization, of international financial institutions," says Louise Tillin of King’s College in London in describing the BRICS’ motives for creating their development bank.
"And last year at the BRICS summit in New Delhi there was the first discussion of the idea that the BRICS countries themselves might set up a multilateral development bank to facilitate South-South lending, or lending among countries in the global south."
Finding Fault With The World Bank
Beijing and its partners have frequently faulted the World Bank and IMF as being Western-dominated and not adequately representing their own priorities. They all, however, remain members of both institutions.
So far the steps the BRICS members have taken toward creating their own development bank remain preliminary. The leaders of the five countries agreed in principle at the close of their summit in Durban, South Africa on March 27 to create the bank. But they left almost all the other the details undecided, including where the bank will be located, what currency it might use, and when it might start.
Equally unclear is how open the bank eventually might become to non-BRIC states and under what conditions.
The stated goal of the new BRICS development bank is to provide its members with a way to pool money for investment in targeted infrastructure projects among themselves.
But the project also aims to support increased commerce between the BRICS and other emerging economies, suggest loans could be made for developing ports, roads, and other infrastructure necessary for trade.
The grouping of emerging states began with four members in 2009 and added South Africa as a partner the following year. Membership in BRICS is based on the fact that all five countries are distinguished by their large, fast-growing economies and significant influence on regional and global affairs.
Together, the five members of BRICS account for 25 percent of global gross domestic product and 40 percent of the world’s population.