The BRICS's new aid bank
At a summit next week, the five 'emerging economies' of Brazil, Russia, India, China, and South Africa – BRICS – will launch their first project: a development bank. It can only work, however, if it runs on similar principles of the World Bank.
Leaders of the five largest emerging economies will meet July 13-16 to finalize their first joint project: a new international development bank. The countries, known as BRICS (Brazil, Russia, India, China, and South Africa) have spent many years trying to find a common goal.
Together they have more than 40 percent of the world’s population. And they share an interest in challenging many of the norms set by the West. Yet each nation is quite different in governance and ambition.
India is a thriving democracy while China is not. Russia and China seek expansion of power while the others fear it. Each has its own economic specialties.
They hope the new bank is the start of a new approach for international institutions. Each member is expected to pony up $10 billion for the fund, which will be used in issuing low-interest loans to poor countries to build roads, airports, and other infrastructure. That’s a noble idea. Yet the bank will largely overlap with the work of the World Bank and similar regional development banks. Those were set up after World War II by Western nations to promote prosperity and democracy.
The BRICS want more say in institutions such as the International Monetary Fund. They have been frustrated in getting it. They also contend these institutions are run on principles -- such as economic and political freedom -- that too often intrude on a nation’s interests. Loans from these institutions, in other words, come with unpleasant strings, such as concern about corruption, human rights, or protectionism.
Almost by definition, international institutions are universal in defining humanity-wide ideals. Nations that join them enlarge their concept of “national interests” to embrace ideas proved over time, such as openness, representative government, and honesty. Creating a development bank that avoids those ideals runs the risk of failing.
China largely drives the BRICS’s agenda. And the club’s big democracies, India and Brazil, remain wary of Beijing’s immense influence. The Chinese economy is the size of all the others combined, and then some. They also ask if Indonesia, another giant democracy, should become a member (altering the club’s name to BRIICS).
Democracies have many problems and often don’t produce good economies. But, according to a study by four scholars published in the National Bureau of Economic Research this spring, a country that democratizes increases its economic output per capita by about 20 percent over 20-30 years. And by relying on basic principles, such as rule by consensus of the governed, democracies eventually make better reforms, such as boosting education and spreading wealth.
Many of the world institutions, such as the United Nations, need reform after many decades of change, especially in their power sharing. But they were set up to bind nations by common ideals, largely in hopes of dampening the kind of nationalism that has often led to war. The BRICS’s new bank should be a uniter, not a divider. If it can be run on the same principles as current development banks, it will make a valuable contribution to uplifting the world’s poor.