Through no ill-intent, the International Monetary Fund and the World Bank – also known as the Bretton-Woods Twins – have come to hold misleading denominations that suggest balance and equilibrium. Despite their names, it is no secret that these two organizations, like many others, are disproportionately influenced by the United States of America—which despite having been a boon in terms of stability, has also resulted in the exclusion of other countries eager and ready to catalyze development around the world. It was in this context that the BRICS coalition (Brazil, Russia, India, China, and South Africa) proposed – and, earlier this year, confirmed – the advent of the New Development Bank (NDB), a fresh alternative channel through which developing countries might go about acquiring funding for development projects to boost their quality of life. Specifically, the NDB aims to focus on matters of infrastructure, producing electricity, transport, telecommunications, access to clean water, and sewage systems the main objectives. Unsurprisingly, the USA has reacted with dissidence – perhaps in fear of its hegemony being subverted in the world of financial institutions for development. By ceasing to be the only major player in the game, the USA’s leverage and control over the nature and extent of international order is threatened, despite the stated objectives of the World Bank and the IMF having nothing to do with such matters of control. It is worth noting that the BRICS are not attempting to create a carbon copy of the IMF or the World Bank: the NDB will offer its own unique features by which the BRICS hope to garner support and prestige in the international scene. Notably, the NBD will do away with the IMF’s voting system that depends on capital share. Instead, it will be built upon the principle of parity amongst the five states: one country, one vote, with no veto power whatsoever. This is in stark contrast with the Bretton-Woods twins (and many other UN organizations), whose implementation of the veto has often been cited to stifle their ability to make decisions. To understand this move more clearly, keep in mind that the BRICS account for over 20% of the world economy, but together hold less that 11% of the voting power within the IMF. Another of the perceived flaws that the NBD will seek to ameliorate is the extremely stringent set of conditions placed upon any country seeking loans from the IMF or the World Bank, which has infamously prevented numerous countries from securing funds for sorely needed development projects. Taking this into account, the NDB currently stands to offer an unprecedented combination of convenience and funding scale; around 100 billion USD in total is said to be tied to the project, with another 50 billion USD pooled for direct loaning to recipient states. Of the 100 billion, China will cover 41%, with Russia, India, and Brazil covering 18% each, and South Africa paying a mere 5% of the whole endeavor. As a result, it is undoubtedly China that will spearhead this operation, which is perhaps another of the reasons that the United States appears so threatened by this nascent competitor. With economic growth that has taken the world by storm, China is one step closer to fulfilling its prediction of being the world’s next superpower. In order to maintain its grasp over the international scene, the USA has taken to quietly trying to secure the alliance of Australia and South Korea—both of whose support will be key factors in creating the image of prestige that the NBD needs in order to become a serious competitor against the current hegemony. Many Western analysts have taken this as a sign of dishonest signals in the past, wherein the United States has historically been insistent in criticizing China for not taking a role in the global affairs proportionate to the power China has. China has likewise been surreptitiously trying to seduce the two states by way of its enticing new features and potential for increased sway within the new system. All told, this enormous step in China’s rise to power will be dependent on the circumstances regarding international support that are to unfold in the coming weeks. These are interesting times for the global balance of political economy.

Sources:

http://www.marketwatch.com/story/why-are-the-brics-starting-a-bank-and-9-more-faqs-2014-07-21?page=2

http://www.washingtonpost.com/blogs/monkey-cage/wp/2014/07/17/what-the-new-bank-of-brics-is-all-about/

http://unctad.org/en/PublicationsLibrary/osgdp20141_en.pdf

http://thediplomat.com/2014/07/3-reasons-the-brics-new-development-bank-matters/

http://thediplomat.com/2014/10/why-the-us-is-trying-to-squash-chinas-new-development-bank/

This article was written by Steven Chien. Send an email to [email protected] to get in touch. Photo Credit: Tirza Alberta