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The paradox of alternative institutions

The BRICS policy of development finance is embodied by its two institutions, the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) launched in 2016. NDB was set up to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging and developing countries. CRA, on the other hand, provides a financial safety net for BRICS through the establishment of a currency reserve. These tasks overlap with the work of the World Bank and the IMF.

Since its first summit in 2009, BRICS has demanded reforms in the IMF, especially about voting quotas rather than the organization’s development policies. In their demands, moreover, BRICS did not act alone. In fact, BRICS absorbed its reforms agenda from a previous agreement among major global powers that had already been reached in 2008 (under the auspices of the G20 summit). The US Congress, however, did not agree with the reforms, which would have ended US dominance in the institution. Thus, at the Ufa summit in 2015, BRICS leaders declared,‘[w]e remain deeply disappointed with the prolonged failure by the United States to ratify the IMF 2010 reform package, which continues to undermine the credibility, legitimacy and effectiveness of the IMF’ (BRICS, 2015: Article 19).

Democratization of the international institutions is one of the fundamental values of BRICS. While global institutions of development finance are run arguably on the basis of‘dollar and vote’, BRICS institutions are run on ‘country and vote’ basis. In the NDB, decision-making power is equally divided between the five BRICS member states. Yet, while the NDB is open for all UN members, the country and vote principle is reserved only for BRICS members. According to the founding agreement of the NDB, the voting power of the five original members shall not fall below 55 per cent of total votes, whereas the maximum voting power for any new member state shall not exceed 7 per cent. Thus, the NDB will remain dominated by the BRICS, even if its membership expands. In this regard, it is similar to the IMF and the World Bank, in which the developed countries still retain a disproportionate influence compared to their role in the global economy (NDB, 2014: Articles 5,6,8,11; IMF, 2018).

With an initial authorized capital of $100 billion, the NDB and the CRA (also set at $100 billion) have the financial means to make an impact. For comparison, the capital of the International Bank for Reconstruction and Development (part of the World Bank group) is $230 billion. In the IMF the total amount of special drawing rights in 2015 was about $240 billion, which converts to about $340 billion. Two additional factors contribute to the financial relevance of the NDB and CRA. First, as they are open to new members - for example, Turkey, Indonesia and Mexico have already shown interest in joining - the NDB and CRA have the potential to increase their financial power. Moreover, BRICS countries are better positioned to invest in development finance, as their share of global savings is larger than the combined share of the US, EU and Japan (ORF, 2015). How can BRICS use that financial leverage?

The purpose of the NDB is to channel funding for development and infrastructure projects in emerging and developing countries ‘complementing the existing efforts of multilateral and regional financial institutions’ (NDB, 2014: Article 1). Rather than a challenger, the NDB is thus complementary to the World Bank and the IMF. The key difference is that BRICS financing is delinked from the policy reforms and conditions that the traditional institutions are known to require. In the Bank’s strategy this is clearly stated in the following manner: ‘National sovereignty is of paramount importance to NDB in its interactions with member countries. NDB’s mandate does not include prescribing policy, regulatory and institutional reforms to borrowing countries’ (NDB, 2017: 11).

Moreover, instead of embracing the existing Western ideology of development, the NDB would seem to invite discussions and debates on the nature of development. This is an important inference, because it implies that the NDB may seek to distance itself from the paradigms of development that still prevail in the predominant international financial institutions. The NDB’s General Strategy states: ‘The bank will constructively engage the international community as an independent voice on development trends and practices. As a new institution, NDB has much to learn from the wealth of experience of multilateral and bilateral development institutions, as well as civil society and academic organizations’ (NDB, 2017: 11).

The NDB could in this manner be represented as an alternative institution to the Washington-based institutions and to the neoliberal globalization policy promoted by them. However, some recent NDB lending suggests that this might actually not be the case. In 2018 the NDB granted a $200 million loan to Durban port in South Africa to increase its container capacity. Critics argued that the port was subject to broad public opposition, as well as being mismanaged and that its expansion would only increase these problems, while adding to South Africa’s already high debt burden. The Durban loan, it has been suggested,‘makes a mockery’ of claims that ‘BRICS bloc acts differently from arrogant Washington bankers’ (D’Sa and Bond, 2018).

The Contingent Reserve Arrangement (CRA),on the other hand, is organically linked to the IMF and its reform policies. The objective of the CRA is to provide a safety net against potential shocks in global financial markets and the possible resulting balance of payment problem. But if and when any BRICS country or other (future) member of the CRA has to rely on its lending, and when it needs more money than 30 per cent of its borrowing quota, it must first seek structural adjustment loans from the IMF before it can receive more support from the CRA. Apparently, the CRA recognizes the political reforms ofWashington Consensus as well as the supremacy of IMF.

It is thus possible to think that the CRA demonstrates BRICS’ approval of the Washington-based ideology' of economic development, which led the ‘lost decade’ in Latin America in 1980s - denoting loss of economic and social development caused by privatization, dismantling of social infrastructure and soaring unemployment (see Stiglitz, 2002; Bond, 2016, among others) - and is currently causing the same kind of distress in some countries in southern Europe.

From the perspective of BRICS as a challenger to the Washington Consensus, CRA linkage to IMF policy reforms would pose an analytical dilemma: the apparent contradiction between rejecting conditional development finance on one hand and committing themselves to structural adjustments on the other. A possible solution to this dilemma comes from the understanding of BRICS’ role in development finance as an additional provider instead of a challenger. Their rejection of conditionality does not emanate from the conviction that the Washington Consensus is wrong but from a conviction that it is not the only truth or a comprehensive perspective on development. BRICS may thus be willing to continue to cooperate with the IMF, even by subjecting themselves to structural adjustments, while simultaneously constructing development without the same conditions.

BRICS finance initiatives do not appear to provide an alternative to the imperialist or liberal international order, neither are they a striking example of South-South cooperation in the Bandung spirit by connecting the South against international structures benefitting the North. In the next section we seek an alternative theoretical perspective to challenge these interpretations.

 
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