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Can BRICS development bank succeed where others have failed?

• Published on 17 Aug. 2014 • Category : Finance • Tags : brics bank fail

On July 15 in Brazil, the smoke had just cleared on the 2014 World Cup, one of the most memorable in the competition’s history. Already, though, there was more global news to announce.

During a summit of the BRICS nations -- an acronym for a coalition of nations consisting of Brazil, Russia, India, China and South Africa -- in Fortaleza, Brazil, the leaders announced the formation of a New Development Bank (NDB). The bank comes as a result of the BRICS nations -- all of whom have become major economic players recently -- not getting a corresponding amount of influence within the development finance leaders like the World Bank and the International Monetary Fund. The bank will start with $50 billion in initial capital split evenly between the five countries, to be used on infrastructure projects first in the member countries then, eventually, in developing nations who apply for funding.

At the time of the agreement, the leaders asserted the bank would soon challenge the World Bank and IMF -- two lending agencies that dominate the development sphere -- in terms of influence, scope and funding.

Many in the global ethics community hope the BRICS bank will also exceed those banks (and smaller, regional development banks) in their commitment to protecting human rights in each and every one of their projects.

The World Bank has come under fire recently for its lack of oversight on multiple infrastructure projects. In Ethiopia, uplift projects were hijacked by government officials who refused to help certain people based on their political preference. In Honduras, the World Bank’s private investment arm backed Dinant, a palm oil and food company responsible for a slew of killings. The World Bank obviously has the influence and manpower to avoid these types of human rights violations, but neither project’s flaws were addressed until it was too late.

These oversights are not limited to the World Bank, as smaller, regional development banks have been rife with corruption -- especially in the low- and middle-income regions of the world. As Jessica Evans argues in the Guardian, the BRICS bank, as a new institution, has a chance to implement objective and independent accountability measures from the ground floor.

Despite their decision to vote and prioritize projects based on investment power (which China will dominate, as it is by far the largest economy of all the nations) like the World Bank and IMF, there remains hope for the bank as more willing to implement and monitor projects in the member nations’ own backyard. A common gripe with the major development banks is their disinterest in developing nations, which the World Bank admits suffer from a $1 trillion infrastructure gap. The BRICS bank, which includes the major economic power from both South America (Brazil) and Africa (South Africa) as well as China, a major investor on both continents, can take better advantage of the South-South alliances of BRICS itself.

With the news of a BRICS development bank still so fresh, it’s difficult to tell how effective the bank will be. But much as developing societies have a chance to learn from developed nations and their mistakes, so too does the BRICS bank enjoy the opportunity to correct some of the problems now facing established development banks.

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