Another Bric in the Wall
The creation of a BRICS bank, or New Development Bank as it is likely to be named, deserves only minimal applause from India. And the creation of a BRICS Contingency Reserve Fund deserves to be met with severe concern.
New Delhi has claimed victory with the bank. The presidency will be initially held by an Indian — hardly a big deal as it is a rotational presidency.
Also, the most sensitive issue of voting rights has been settled by dividing the votes equally between the five members. As the poorest member, South Africa, has limited resources this has meant the bank’s initial capital will be a tiny $ 50 billion, about a 15% of the World Bank’s funding.
Here’s a mild prediction: the BRICS bank will meander along for many years, growing slowly, doing little and having about as much impact on the global financial system as Esperanto has had on the world’s linguistic structure. To preserve the voting structure the funding will always be minuscule.
What will take off will be the contingency fund.
The CRF has been structured with voting rights apportioned on the basis of funding. China has already bagged 41% of the fund’s voting rights and, in future, will probably pour money into the fund.
The CRF will be a true rival to what it is clearly being modelled after — the IMF — because it will have Chinese capital behind it. The BRICS bank will be nothing more than another multilateral bank offering jobs to retiring bureaucrats from BRICS finance ministries.
The hope that CRF will be an alternative to the IMF is nonsense for two reasons.
First, analyse what is exactly the problem with the IMF? The biggest grouse, largely by leftists, is that it promotes a certain economic staitjacket on those it lends money to. It is hard to see why India should complain: if that was the case, then the IMF is to be credited with launching our economic reforms. But that aside, the idea that the CRF will be different is highly questionable. In fact, I doubt it will be any different.
Why? One, the CRF has already declared that more than half of its funding will be linked to IMF funding. In other words, a supplement to the IMF that will largely mimic the IMF in every way. Two, there is no record of China being more lenient or more generous with its aid. In fact, Beijing is infamous for being quite miserly about its aid, loans no grants, hard nosed demands for assets as collateral, and so on. One has only to ask Pakistanis of their experience of Chinese aid.
The BRICS was always a questionable organisation, founded by Vladimir Putin in one of his knee jerk actions with little thought to future consequences; dominated by China who’s GDP is larger than all the other members put together; and putting together a group of countries who’s common interests were remarkably difficult to define.
Now the BRICS has a purpose and an institution. However, it seem set to become a vehicle of Chinese power and influence, curiously subsidized by an India which continues a tradition of poor strategic thinking.