09
Oct
The Brics group of nations may face insurmountable challenges in their ambition to start a $100bn multilateral development bank, dubbed the Brics Bank, experts on development finance have said.
The sheer headache of starting any such bank is immense. But rivalry and disagreements between the five sponsors of what is officially called the New Development Bank could make life impossible.
Brazil, Russia, India, China and South Africa may find many ways to “stumble over each other”, or make investment decisions that are politically rather than economically motivated, said Harinder Kohli, president and CEO of Centennial Group, a strategic policy and advisory firm.
Kohli – who spent a quarter-century at the World Bank, promoting financial and private sector reforms in east Asia – said governance would be critical to whether the NDB, which hopes to lend up to $34bn a year to projects across the developing world, flails or takes flight.
Will such a diverse group of countries “be able to take decisions on the basis of technical or economic merit, rather than political factors?” he asks. “Would the Brics Bank’s five partners allow a purely technical management team to decide a project?”
For Peter Attard Montalto, chief emerging market economist at Nomura, the new development lender is, in political terms, “little more than a stocking filler”.
He is sceptical about whether the Brics Bank will prove a net positive, either for the sponsoring countries or for the developing world.
“They’ll be able to get it off the ground and disburse a bit of money, but does anyone really need it?” he wondered. “You might see a few token deals done here or there, but I can’t see it having much impact beyond that.”
The two main challenges, he said, were conditionality and bailouts. The former is the more nuanced problem. “Imagine an African mixed energy-and-infrastructure project. Would Russia get to build the energy plant, or China? What, really, would Brazil bring to the table? And would you have Indian management overseeing Chinese workers? The real risk is that you can’t do any projects, given bickering over conditionality.”
Then there’s the thorny issue of bailouts. Sovereign defaults rarely proceed smoothly, as the IMF and World Bank have discovered in recent decades. The humiliation of going cap in hand to Washington smarts for generations, and is never really forgotten.
“So what happens when one of the Brics countries needs a bailout?” said Attard Montalto. Would it go to the Brics Bank? And if they are in the economic position of needing bailout money, will not other founder members likely need one too? Will the richer members [of the group] then accept bailing out their troubled partners?”
Yet the mere existence of the Brics Bank is a sharp reminder of how the existing global development banks have failed many of their smaller national members.
Two senior officials from South Asia, one from each of the IMF and World Bank, bemoaned, in the words of one, the “lack of joined-up thinking” that convinced such a diverse group of countries to go it alone: “If the IMF and the World Bank had been doing their job in the first place, there would be no need for this new institution.”
Source: http://www.emergingmarkets.org/Article/3388626/Rival-Brics-New-Bank-may-be-stillborn.html