BRICS version of IMF, World Bank an intriguing development
The agreement of the BRICS nations to create their own development bank is undoubtedly a move to strengthen their political influence in developing countries.
In fact, the BRICS (Brazil, Russia, India, China and South Africa) came close to admitting that in their statement on the decision issued on Tuesday at their summit in Brazil.
According to the group, their New Development Bank (NDB), which will start off with US$50 billion in capital and eventually increase to US$100 billion, will use sound banking principles to strengthen co-operation within the group and "supplement the efforts of multilateral and regional financial institutions for global development".
As was to be expected, this new bank is already being regarded as a strong push by the BRICS against the International Monetary Fund (IMF) and the World Bank, both of which have been criticised for being dominated by the United States and Europe and for allowing rich countries too much sway in their decisions. In addition, both institutions have been accused of not giving enough voting rights to developing countries.
In fact, Brazilian President Dilma Rousseff made that feeling very clear when she said that the BRICS countries have the power to introduce positive changes that they believe are more equal and fair.
The IMF, in particular, has taken the brunt of the criticism as the conditions it sets for countries that turn to it for financial assistance have been described as extremely austere.
Indeed, over many years governments of developing countries have scolded the IMF for setting loan requirements that have increased hardship on their populace.
That criticism was addressed by IMF Managing Director Christine Lagarde during her recent visit to Jamaica. Mrs Lagarde told an audience at the University of the West Indies that the IMF had changed and is now an organisation with a head and a heart.
How well that change will be accepted by the developing world is yet to be seen, especially given the BRICS' stated commitment to using the NDB to help developing nations avoid "short-term liquidity pressures, promote further BRICS co-operation, strengthen the global financial safety net and complement existing international arrangements".
That the bank also aims to increase the amount of money loaned to developing countries to help with infrastructure projects will prove attractive to governments struggling to keep their economies afloat.
What they should not ignore, however, is the fact that what they will be getting from the New Development Bank are loans - which must be repaid - with strings attached.
For, as we have already posited, the BRICS are seeking to increase their influence in areas beyond economic relations.
Where developing countries can benefit from such a relationship, we believe, is in the areas of knowledge and technology exchange, a platform that has already been laid by former Brazilian President Lula da Silva who, during his time in office, promoted South-South co-operation.
Both the IMF and World Bank have given a cautious response to the BRICS development, saying additional investments are welcomed. It might be a different kettle of fish, however, if the new bank begins to compete seriously for their traditional clients.