BRICS (Brazil, Russia, India, China and South Africa) nations gave a message to the West recently after the announcement to form New Development Bank(NDB) in order to counter the lending institutions based in western hemisphere. The NDB or the BRICS Development Bank will be headquartered in Shanghai and will have its first chief from India. The most important objective of the NDB is to lend money to BRICS nations for infrastructural and development projects. The membership is open to other countries and NDB will start lending from 2016. The other objective is to challenge the Western dominated global financial institutions.
IMF and the World Bank have been traditional lending machines for the developing economies to propel the infra and development project around the world. Formed after World War II, these institutions have been giving away loans to countries in need with each member country having variable share in the voting power roughly based on their contribution to these institutions. There have been demands of altering the voting powers where emerging economies asking for better share of votes and hence decision making. Unlike IMF and World Bank, NDB will have equal shareholdings of member states, despite the influence of powerhouse China. The idea took a year to become an announcement; chiefly to curtail the huge shadow of China, as it wanted to be a ‘Big Brother’ in the scheme of things.
Though the funds are small at the start ($ 50 billion) but there is a plan to increase it to $ 100 billion. BRICS being the growing economies have 42% of worlds’ population and holds 30% of worlds’ GDP on PPP basis. Their needs for investment are diverse, burgeoning and flattening of the western economies has led to an adverse impact on these markets. This step of breaking away from the mould is indeed a bold one and experts agree it to be a wise one as well. The funds from NDB will give more impetus to growth and kick starting new projects which have been stalled due to slowdown in the rich western world as funds are not available for lending. The sixth BRICS summit at Fortaleza has surely turned heads from across the world, but it should not be seen as an act of aggression, rather it should be seen as signs of diversification of global wealth and funding.
NDB may not lead to impact as IMF and World Bank has in the world, but increase in funding along with strengthening of the BRICS will surely make it a major contributor to world’s growth and welfare.