15/12/2024
BRICS AND NEW DEVELOPMENT BANK ANALYZING THE OPERATIONS OF BRICS’ NEW DEVELOPMENT BANK IN THE GLOBAL SOUTH
The ‘New Development Bank’, established by the BRICS member countries with an agreement signed in 2014, aims to ensure the economic development of its member countries and other underdeveloped countries through infrastructure investments. As an international platform, BRICS enables member countries to raise their voices against Western financial institutions such as the World Bank and the IMF. Due to its unique structure, the New Development Bank is considered a good alternative that can affect the development levels of member countries. This report will examine how the New Development Bank affects the countries we call the Global South through infrastructure investments. The report will first provide information about the Bretton Woods institutions that formed the backbone of the international system where the West is hegemonic and will discuss why developing countries seek to create a new alternative. It will then discuss the structure and purposes targeted in establishing the BRICS and the New Development Bank. Finally, the report will discuss the operations of the New Development Bank in the Global South countries and the difficulties it may face in its operation.
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Introduction
The end of the Cold War era's bipolar world allowed the US to assume the role of global hegemon. Some even contend that a multipolar world order is now emerging instead of the existing one. By strengthening the existing economic system, the United States was able to create and preserve its hegemonic standing, thanks mainly to financial organizations like the World Bank and the IMF that were founded following the signing of the Bretton Woods agreement. However, even after the Bretton Woods agreement was signed, there was great discontent among the Global South over their underrepresentation in international financial organizations. They contend that by setting quotas that might eventually impact their voting share, the IBRD and IMF have been causing inequality within the organizations. Another criticism stems from the conditionality principle of the IMF, which, while providing the debtor countries with credits, ends up with austerity measures.
These criticisms led developing countries to construct international platforms and organizations that may serve their interests and represent them in world politics. For instance, the famous G8 did not include any developing countries, and there was a need for a more comprehensive and inclusive international platform. Therefore, the G20 emerged and covered many developing countries. Another initiative to form an international platform comprised of developing countries was the establishment of BRICS. Apart from these initiatives, developing countries established national development banks that aim to provide funds for infrastructure investments. In addition to these national development banks, there are also multilateral development banks to which many different countries contribute and which were established to provide funds for infrastructure investments of their member countries. Despite the BRICS New Development Bank being one of the examples of multilateral development banks, it is not the only one, and there were early prototypes that were not supported by some developing countries. Some academicians think that these new institutions and platforms are equipping developing countries with the opportunities to represent themselves and raise their voices in world politics. Yet, it is not possible to assert that there is a uniform opinion regarding this.
The New Development Bank primarily aims to provide financial assistance to support infrastructure investments and sustainable development in the Global South. By doing this, it aims to avoid the things it criticizes in Western financial institutions. To that end, it prioritizes de-dollarization of credits.
Ironically, the founding agreement forming the Bank was signed precisely on the same day forming the Bretton Woods institutions 70 years ago. Additionally, it differs from WB and IMF in terms of structure since equal share is prioritized. However, there are discussions in the literature about whether BRICS or New Development Bank supplements the existing financial institutions and international platforms. Another discussion is questioning whether or not the BRICS Development Bank will be able to ensure the de-dollarization of the credits. Despite the differing views about BRICS and the bank, literature compromises on the view that developing countries feel affected by the actions of Western financial institutions such as the IMF and World Bank and want to be represented and heard.
This study analyzes the BRICS New Development Bank's potential to improve economic development and address the shortcomings of Western financial institutions in the Global South. This paper will question how the BRICS New Development Bank shaped the Development of the Global South through infrastructure investments. Firstly, the report will mention the Bretton Woods institutions' structure and aims, which form the backbone of the international political economy. Then, the paper will go on to critically analyze what these institutions fall short of and talk about what Global South demands. Then, it will mention the organizational structure and establishment purposes of BRICS and the New Development Bank. Finally, it will discuss the operations of the BRICS New Development Bank in the Global South.
To conclude, NDB represents a significant change in global financial dynamics and is seen as an alternative to Western-dominated financial institutions. This report will examine NDB's potential to address the shortcomings of IMF and WB in the Global South.
1.Backbone of the International Political Economy: Bretton Woods Agreement and its Institutions
The current international political economy dates back to 1944 when the Bretton Woods Agreement was signed. The International Monetary Fund (IMF) and World Bank are the products of the initiative to establish a post-war economic order as planned in Bretton Woods. Forty-four nations were represented during the conference, and the ideas shaping these institutions' structures were the ideas of the WWII winners. [1] Therefore, it is possible to mention that only winners' interests are represented in these institutions, and this problem of "under-representation" will lead to criticism of the Global South later.
When the IMF was established, the ''fixed exchange rate'' system was prevalent in the international economy. In this system, payment imbalances were addressed by acquiring liquidity from another country in the short run. Therefore, the IMF was established to provide liquidity to countries in need. In a way, the fund protects international monetary and financial stability. [2]
The International Bank for Reconstruction and Development (IBRD) was established to deliver resources to ensure the postwar rebuilding and development of impoverished countries. At that time, the prevalent idea was that economic development entailed growth, which would be the outcome of capital investment. Therefore, the Bank was established to provide credit to countries in need. However, both institutions went beyond their initial intentions. The Bank could not keep its word fully due to being financially insufficient as a young bank. Therefore, the US Marshall Plan supported the task of delivering resources for postwar rebuilding. Thanks to the Marshall Plan, Europe overcame its economic problems, and the Bank turned to developing countries to provide credit. Additionally, the fixed exchange rate system was replaced by the floating exchange rates system in 1973, which is in use today. However, payment imbalances were still prominent, and they became more fluctuant. Therefore, the Fund was still able to maintain its task. [3]
The Global South accuses these institutions of producing inequalities within their structure. Western countries are thought to be promoting and following their own interests at the expense of developing nations.[4] When the IMF was established, "inequality" was not on the agenda. However, the Fund has been researching inequalities in recent years.
In order to understand why developing countries have been accusing the Bretton Woods institutions of enhancing the inequalities, we first need to look at the structure of these institutions. The executive board, managing director, and board of governors comprise the three components of the IMF governance system. The highest policy-making authority is the Board of Governors, and all countries can be represented in this authority. The IMF Executive Board chooses the IMF Managing Director, who acts as the organization's chairman. [5] However, since the foundation of the IMF, all the managing directors have been from Europe.
Every IMF member has a quota that sets their relative importance within the organization. Quotas determine how much each member will contribute to the Fund. The 2016 IMF report explains this as follows: ''Quota subscriptions are a central component of the IMF's financial resources. A member country's quota determines its maximum financial commitment to the IMF, voting power, and access to IMF financing.'' [6]
