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Hopes and illusions
– by Sabine Balk
The NDB is supposed to fund infrastructure projects in the global south. In Malange, Angola, a Brazilian company is building a road.
The author considers the agreement to establish the bank a success because the BRICS proved that they are capable of joint action. The scholar, who works for PUC’s BRICS Policy Centre, argues that it made sense to establish an international financial institution (IFI) because the governments of emerging markets are disappointed in the existing IFIs. Especially the World Bank and the International Monetary Fund (IMF) are dominated by the USA and other affluent members of the OECD (Organisation for Economic Cooperation and Development) in their eyes. Emerging-market governments feel they do not have an adequate say in these IFIs because their votes do not reflect their growing economic clout. Moreover, the BRICS complain that the US Congress is blocking reforms that would improve matters.
Schablitzki states that the BRICS want the new multilateral bank to accelerate reform in other multilateral settings. Moreover, he appreciates the great symbolic relevance of the New Development Bank (NDB) because it will help the BRICS to make their national interests in regard to the developing world look legitimate, avoiding the impression that they are merely promoting trade and investment to serve their own needs.
Initially, the new institution will be known in particular for refuting the neoliberal approach of the World Bank and the IMF, Schablitzki writes. Liberalisation, deregulation and privatisation are core principles of the established “Washington Consensus”. In contrast, the NDB is likely to appreciate more regulations and allow government interventions in markets in the context of developmental projects. Moreover, the author expects the BRICS to oppose structural adjustment and market-driven approaches. Schablitzki believes that the NDB will not link loans to demands for institutional reforms or political conditions such as respect for human rights, better governance or environmental protection.
He also points out that the new bank will complement the existing international financial architecture thanks to BRICS members’ own developmental experience. They have considerable expertise concerning things like public health, education, urbanisation or agriculture.
Whether the NDB will really bring about a paradigm change in international development finance remains to be seen, Schablitzki states. He warns that more resources and capacities are needed than the NDB will command in its initial years. Therefore, it will have to co-finance projects in cooperation with other agencies. Schablitzki reckons that it will be inevitable to join hands with the World Bank and other established IFIs.
Nonetheless, high hopes in developing countries are riding on the NDB, which is supposed to start operating in 2016. People expect faster, simpler and cheaper loans. The NDB’s founding document mentions the need to fund infrastructure projects and sustainable development in emerging markets and developing countries. According to Schablitzki, the NDB may improve development finance by giving post-conflict countries and fragile states easier access to credit. On the other hand, the NDB will obviously have to operate with some conditions in order to ensure that its money is used for the agreed purposes and will be repaid.
Developing countries’ hopes, moreover, are not reflected in NDB governance. The NDB will be run by the BRICS and controlled by them. Other countries will not get votes on the NDB board. In Schablitzki’s view, a chance has been missed to create a true and jointly owned “Bank of the South” by developing a more democratic setting than the one of the World Bank.
The BRICS Development Bank: A New Tool for South-South Cooperation?