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Inter-state dialogue was further extended and an Action Plan was adopted at the third BRICS Summit in 2011, when South Africa had already joined the group. New areas of cooperation included dialogue between health ministers and research on economic and trade issues. With intensified inter-state cooperation, in 2011 the BRICS countries also began to express dissatisfaction with the slow pace of reforms in world economic governance, and at the Summit of the same year, called “for a quick achievement of the targets for reform of the IMF agreed at previous G20 Summits.” The Summit of 2011 signaled an increased dissatisfaction associated with the deepening of inter-state cooperation. Yet in that year, BRICS remained a forum for dialogue, though with increasingly extensive inter-state networks. At that time, BRICS was actively pushing for reforms in both the UN and international financial organisations, but was yet to provide alternatives. This can be interpreted in three ways. According to Drezner,89 the BRICS were critical but not enough to provide initiatives of their own. A second interpretation follows from the argument that the BRICS are too different to be able to cooperate with one another; they share an antipathy to US dominance but little beyond that to support internal alignment.
Thus it can be argued that the BRICS channel their criticisms to new institutions only on secondary basis when their demands have not been adhered to on the multilateral fora. The founding of the New Development Bank in July 2015 seems to undermine the first two perspectives, while serving as proof of the latter.
BRICS in the Context of Global Governance New Development Bank The lack of proper intergovernmental institutions did not forestall BRICS development. At the 2012 Summit, BRICS stated that cooperation among health ministers “should henceforth be institutionalized” in order to address the common concerns of “universal access to health services, access to health technologies, including medicines” (BRICS IV 2012, 42). More noteworthy is, that in 2012,the BRICS countries launched an enquiry into the benefits of a New Development Bank (NDB) “to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging and developing countries.” Finance ministers and central bank governors were also asked to explore the construction of a financial safety net for BRICS through the establishment of a currency reserve: the Contingent Reserve Arrangement (CRA).90 The NDB commenced business in July 2015, and a Treaty for the establishment of the BRICS CRA also entered into force in 2015. The purpose of CRA is to protect BRICS in the event of any liquidity pressures that might arise in the wake of the persistent sovereign debt crisis and uncertainties in the financial sector of Western economies. In short, BRICS inter-state cooperation has now led to the creation of new inter-state institutions with economic and financial authority, and with the NDB as an international institution.
The rationale behind the NDB can be inferred from the sluggish pace of reform at the IMF. At the UFA Summit in 2015, BRICS leaders declared, “[W]e remain deeply disappointed with the prolonged failure by the United States to ratify the IMF 2010 reform package, which continues to undermine the credibility, legitimacy and effectiveness of the IMF.” Along with World Bank, the IMF has been the key institution of financial world governance – which is the reason for the BRICS to demand their reform. But they have also been dominated by US and other developed countries. In 2015, US' share of IMF voting power was
16.5 percent, and G7 countries accounted for 41.2 percent, while the share of BRICS was at 14.1 percent. Indeed, until the reforms in 2016, developed nations still accounted for about 55 percent of IMF voting power. As the decisionmaking rule in IMF is that of the majority or qualified majority, this implies that the US and other developed countries have so far been able to direct IMF policies. Correspondingly, any developing and emerging country agenda, to be successful, must have the support of at least some of the developed countries.
Battle for Globalisations?
In the NDB, decisionmaking power is equally divided between the five original member states.93 NDB then has a more democratic decisionmaking structure for its members. This throws light on BRICS' concept of international democracy: it does not refer to economic size or the size of population, but at least among the BRICS, it means that all members irrespective of their size and power should have an equal vote. Taking into account that China alone accounts for about half of the BRICS economic output, this decisionmaking structure clearly deviates from that of the Bretton Woods institutions. It also implies that NDB will not become a mere financial arm of China. That does not, however, stop the NDB from cooperating with the China-led AIIB, which was planned for at the Ufa Summit.94 The NDB is open for all UN members, with the terms and conditions for membership being defined by the Board of Governors with a qualified majority of four original members. Except as otherwise provided for, the voting rule is a simple majority. There is, though, a limit to new members, which guarantees that the NDB remains an institution controlled by the BRICS: the share of voting power of the five original members will not fall below 55 percent of total votes, and the maximum voting power for any new member state is set at seven percent. Consequently, the NDB will remain an international financial institution dominated by the BRICS, and in this regard may be said to be similar to the Bretton Woods bodies, which for their part have been dominated by the developed countries since their inception.95 The initial authorised capital of the BRICS Bank is US$ 100 billion.96 In comparison, the capital of the International Bank for Reconstruction and Development (of the World Bank group) is US$ 230 billion. In IMF the total amount of special drawing rights in 2015 was about SDR240 billion, which converts to about US$ 330 billion. In January 2016 the total amount of SDRs was raised to SDR 477 (about US$ 659 billion). The size of CRA,for its part, is at US$ 100 billion. Thus the bank and the CRA are relatively financially strong, and will be even stronger when other emerging countries join the bank.
So far, Turkey, Indonesia, and Mexico have already shown interest, as Jayshree Sengupta98 writes. The financial arm of BRICS is further strengthened if cooperation with AIIB will be realised. BRICS' share of global savings is today larger than the combined share of US, EU and Japan.99 The NDB is also expected to set the new trend for development financing.
BRICS in the Context of Global Governance
The purpose of the NDB is to channel funding for development and infrastructure projects in emerging and developing countries. As far as rhetoric is involved, therefore, the goal is not any different form that of the IMF and World Bank. Almost 80 percent of World Bank's loans have been directed towards development and infrastructure projects (called 'investment loans').
Myanmar, for instance, launched a project for Ayeyawade river governance and sustainable water usage in 2015 with a WB loan of US$ 100 million. The remaining 20 percent consists of development loans known for their conditions on policy reforms.102 According to Williamson, 103 the lending conditions consisted of 10 reforms that the US officials and the Washingtonbased financial institutions agreed on, including trade liberalisation, cuts in public spending, privatisation, elimination of government subsidies, fiscal austerity, and openness towards Foreign Direct Investment. This Washington Consensus has encountered strong criticism since the 1980s from notable economists like Joseph Stiglitz and Dani Rodrik, with only a few countries, China included, having escaped the reforms. Washington Consensus was the frame from Bretton Woods financial governance and development lending.
According to Sarah Babb and Glinanavos, conditionality still lives on—in the way that lending is focused on countries with a strong track record in successfully implementing the conditions tied to the previous loans.104 A key question then is: Will the NDB in fact be a source of a different brand of development lending? The founding agreement of the bank does not offer any answers to that question. This paper thus turns to the Policy Brief, 'New Development Bank: Identifying Strategies and Operational Priorities', published by the Observer Research Foundation (ORF) and National Institute of Public Finance and Policy (NIPFP). The paper begins by describing the need for development finance and the gap between discourse on development and the international financial institutions. Indeed, over 650 million people across the world lack access to safe drinking water, over 2.5 billion lack access to decent sanitation, and over a billion live without electricity —all of them defined by the United Nations as nothing less than basic human rights. For human growth and the development of society and economy, equally fundamental are social infrastructure and basic social services, such as education and health care. Economists Joseph Stiglitz and Michel Chossudovsky, however, have argued that conditional lending programs have led to the deterioration of social infrastructure as debtor countries are forced to cut their public spending.106 Battle for Globalisations?
The same ORF-NIPFP Policy Brief said that social infrastructure and basic services, along with energy, should be among the primary areas of NDB finance. This marks an important distinction between the manner in which development policy is framed by the Bretton Woods institutions, and BRICS.
BRICS states believe, according to the experts whose views were described in the ORF-NIPFP paper—that "Development finance needs to consider the social return and devise prudential norms accordingly.” Further, they called attention to the problem with the 'fiscal austerity' being promoted by the old international financial institutions. Demands for austerity form part of what critics have labelled as supply-side economics and market fundamentalism, and imply that markets is the fundamental source of development. Thus development finance should follow 'sound' economic principles which in turn reflect on the kind of projects that are suitable for development finance.
The BRICS experts also emphasised how fiscal orthodoxy leaves crucial activities with high social returns at the sidelines of development finance. For example, the dominant financial institutions do not regard it their priority to lend to projects involving rural small holders, urban infrastructure, sustainable energy, health and education, and micro enterprises. For the NDB, the BRICS experts said, these projects should be accorded priority. Moreover, they took note of the continued importance of coal-based energy for developing and emerging economies. As the West-led financial institutions become increasingly critical towards coal-based energy, the NDB should contribute to the developing world's transition from inefficient coal-based power to cleaner and more efficient coal-based technologies.108 BRICS appears to be building a tool for an alternative development policy through the NDB. The founding of the NDB may be viewed as a reaction to BRICS' rising power in the face of the continued dominance of West-led financial institutions, and the resulting development finance that does not meet the development needs of the South.
Divergent Political Economy?
How broad then is this seemingly dissenting—even radical—vision for global development policy and financial governance? Does it also extend to other aspects of economic globalisation? The answer would be the affirmative. There are two reasons for this claim.
BRICS in the Context of Global Governance First, in their post-crisis policies, individual BRICS members seem to have rejected West-led economic and financial policy paradigms.109 Also, as an entity, BRICS seems to reject these models. From the 2012 Summit onward, all subsequent BRICS summits have expressed concerns about West-led financial and economic policies. Various Summit declarations have noted that the accumulation of sovereign debt and the need for fiscal adjustment in advanced economies creates uncertainties for global growth. Excessive injections of liquidity by Western central banks to the financial sector—through quantitative easings and bailout packages from the US government and the Eurozone Troika—have been characterised by BRICS as spilling over into increased volatility of capital flows and commodity prices. At the same time, the BRICS claim that volatile prices (especially of food and energy) put the recovery of the world economy at risk.110 Finally, the Sixth Declaration opens by referring to the “inclusive macroeconomic and social policies carried out by our governments,”and proceeds to highlight the contrast between the economic and financial policies of the individual BRICS countries and those of Western economies.
While the unconventional financial policies can also be explained from merely economic rationales—through the adverse effects of capital flows and commodity prices—the latter notions on inclusive macroeconomics and social policies seem to emphasise a 'less-liberal' perspective to economic globalisation.112 A second reason relates to world trade regime. BRICS are firmly committed to the multilateral framework at WTO with all its safety valves, derogations, exceptions, limited market openings on agriculture, services, public procurement, restricted scope of regulatory cooperation, harmonisation, and the ultimate power of each state to either accept or decline WTO dispute settlement decisions. Developed countries, in contrast, have tried to push further liberalisations first at the WTO and now on the bilateral and plurilateral track. The crucial insight here is that the BRICS appear to give more emphasis to the role of the state in governing and directing economic development, in particular, and markets in general.