The New Development Bank: The start of a new economic consensus?

Erica Kliment – Brazil Institute, 7/21/2014

2014 BRICS Summit in Brazil

The leaders at the 2014 BRICS Summit in Brazil

Is the rest of the world ready for a new order upheld by developing nations? In 2010, when former President Luiz Inácio Lula da Silva invited then-President Mahmoud Ahmadinejad of Iran to the Itamaraty Palace in Brazil, the meeting was highly criticized by the Obama administration. Lula, who had seemed to enjoy international acclaim when dealing with regional politics, was then chastised when he had reached too far out of the western hemisphere. His response was that he was merely attempting to better situate Brazil on the global stage, yet could the criticism have come from the fact that larger power players did not believe Brazil was ready to graduate from the role of regional babysitter?

Four years later, with an unexpectedly successful World Cup under Brazil’s belt and planning on another fruitful mega-event in just two years, the Summer Olympics in Rio de Janeiro, the developed world seems slightly more willing to accept developing nations’ role in the international sphere. Individually, these nations’ global clout is diminishing with slowing economic growth rates, yet collectively, they have the potential to create a new platform upon which they and future developing nations can flourish. Towards the close of the most recent BRICS Summit, five of those countries reached an agreement that, depending on its success, could bring developing nations one step closer to the position they desire – the forefront of international affairs.

During the 2014 BRICS Summit in Fortaleza, the leaders of Brazil, Russia, India, China, and South Africa jointly created the New Development Bank, a multinational fund of $150 billion in capital to provide stability and finance infrastructure for the five developing nations involved in the negotiations as well as future emerging markets. It will be headquartered in Shanghai with its first president from India, on a five-year rotating schedule, and with Brazil taking chairmanship of the board.

In an effort to sidestep the bureaucracy of the IMF and World Bank, traditionally headed by a European and an American, respectively, the BRICS countries decidedly took a step towards progress in economic security by crafting the organization without traditional western influence. These five countries, which comprise approximately half the world’s population, wanted to distance themselves from the unequal voting practices in the aforementioned economic institutions. However, only two years away from the bank’s first loan, anticipated in 2016, the core principles of the bank must be prepared to allow for future change, should the bank succeed.

In the shadow of the Washington Consensus, Brazil and other developing nations had little flexibility to impact economic reform. Yet with the added responsibilities of the development bank, scholars are now urging a so-called “Rio Consensus,” where the BRICS can use their influence as emerging powers to push for transparency with deeply rooted principles in inclusivity and development. Developing nations’ concern with the previously founded international economic institutions is their lack of acknowledging the enlarging role they play on a global scale. With this new organization, however, comes the question of whether or not the relatively diverse nations can follow through on their commitment to economic solidarity and inclusivity.

Many still have doubts about the influence of the BRICS countries.  While some call it a superficial grouping of letters, others talk of the great potential it has to lead other developing nations away from the outdated standards of the west and further strengthen South-South relations. This would call for change as well as trust, as Brazil steps away from its protectionist ways and as the rest of the BRICS trust China will not dominate the bank as a new hegemonic authority. As the countries have already shown, their desire for an agreement eventually outweighed the typical displays of power when they rearranged the conditions in order to satisfy all members of the summit instead of sticking with the traditional, namely, by giving India the first cycle of the presidency after the bank’s headquarters was placed in Shanghai. This compromise, however, proved fruitful only after heated discussion due to the power struggle between India and China, giving rise to speculation that the future may create tensions within the group. Although the differences are clear between the nations, finally creating a bank that has been debated for over two years is certainly noteworthy.

Brazil is an important member of many regional organizations, namely Mercosul and UNASUL. Although significant, these nonetheless do not give Brazil as much clout as they would like in international relations outside of Latin America. The BRICS, however, if continuously successful is an integral alliance for Brazil to obtain further recognition in the international domain, ideally ending with a permanent seat for Brazil on the UN Security Council, thereby cementing their status as a fundamental player in more than just regional matters. For a country built on soft power, this new economic institution constructed by the BRICS could begin to generate the hard power Brazil needs to secure a spot on the world stage. Consequently, the success of the New Development Bank will be heavily monitored in order to confirm or deny the legitimacy of the BRICS, as well as Brazil. The bank offers a potential alternative to the preexisting systems such as the World Bank and IMF, yet will only be effective if the countries can stay away from their predecessors’ mistakes post-Bretton Woods by creating a perpetually viable system open to new growth and expansion.

Erica Kliment is the Staff Intern for the Brazil Institute at the Woodrow Wilson International Center for Scholars.

Photo courtesy of Flickr user GovernmentZA.

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