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Building BRICS

30 March 2012 By Jeff Glekin

The BRICS are gaining global influence. But there’s a danger of overstretch. A plan to create an institution with aims similar to the World Bank has some appeal, especially given the need to finance development; the desire to promote trade in their own currencies; and as a political show of strength. But an Emerging World Bank may diffuse the effort, capital, and talent dedicated to global economic development. BRICS may also struggle to secure their rightful influence over the world’s established development bank.

Sure, the BRICS may argue that the World Bank is becoming irrelevant. China and Brazil’s own national development banks already lend more. And in spite of incremental reform, the developed world continues to out-gun the BRICS in terms of senior personnel. So there is a case for going it alone. The policy objectives are compelling. The need to finance huge infrastructure development is particularly acute in India. And the desire to promote more local currency denominated trade plays to China’s ambitions.

It has political appeal for BRICS leaders too. An Emerging World Bank would be a sign of power and prestige, and a testament to their collective ability to create an institution of global significance.

But the track record of regional development banks is hardly glittering. There’s a long list of jobs for the boys and of political meddling. There’s also the cost of financing the bank. The sovereign ratings of some of the members, who would collectively be the shareholders of a BRICS Bank, are barely investment grade. It would make more sense to increase their contribution to the World Bank’s capital base and see it spend more on development.

It may be no more than a negotiating tactic, of course. By suggesting they go it alone, BRICS nations’ real intention could be to focus minds, and build influence, in Washington. The BRICS certainly should focus their full attention on the bigger prize. For the first time an emerging market candidate looks like a contender for the World Bank presidency. Political, human and real capital would all be better spent in pushing for a greater say in how the World Bank is run and how it spends its cash.

 

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