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What's the deal with the BRICS Development Bank?

By jocote Apr 18, 2014 716 Words
I read the article “What's The Deal With The BRICS Development Bank?” by Kathleen Caulderwood, published recently by the International Business Times. This article mentioned how developing countries are working together economically instead of just dealing with the developed world (e.g. countries like the United States and Germany). In this case, the developing countries are Brazil, Russia, India, China, and South Africa. The article mentions how the US Federal Reserve, as part of its stimulus cut, will be reducing the $85 billion it was investing every month into bonds. It is believed that this cut will impact emerging markets in a negative way. (Caulderwood) In summary, the BRICS countries want to be able to fend for themselves. They don’t want to have to overly rely on developed countries’ economies. A major new initiative for the BRICS countries is what is being called the BRICS Development Bank. This bank is being set up as an alternative to the International Monetary Fund (IMF) and World Bank, two institutions that are largely controlled by the developed world. The purpose of the BRICS Development Bank is “mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing economies.” (Caulderwood) Each country will have to contribute funds to the BRICS Development Bank. China, since its economy is the largest, will have to contribute $41 billion. Russia, Brazil, and India will have to contribute $18 billion each. South Africa, which has a smaller economy, will only have to contribute $5 billion. That totals $100 billion. Any projects funded with bank funds will have to be approved. (Caulderwood) I agree with the leaders of the BRICS countries in their goal of starting the BRICS Development Bank. Their respective economies are still developing but have matured to a level where I think they are ready to take this step. Although the BRICS countries do have opportunities to take advantage of the International Monetary Fund and World Bank, I think it is better for the BRICS countries to be more in control of their own destiny. However, it will not be easy for these countries to start a new bank. Even though the article says they have agreed on how much funding will come from each country, there may be a lot of bureaucracy or debating when it comes to deciding what projects should be approved to receive some of the $100 billion. At this point, no specific projects have been approved. (Caulderwood) China may want funds to enlarge the container port facilities in Hong Kong. South Africa might want funds to help expansion of coal mines in an environmentally friendly way. India might want funds to upgrade the technology at call centers. Russia may want to modernize its oil refineries. Brazil, too, may want funds for its petroleum industry. The countries are somehow going to have to try to find some common ground. Another potential problem with the BRICS Development Bank working is that the BRICS countries have some economic commonalities but also are a lot different. The article mentions how China’s economy is much larger than any of the others. By another measure, per capita income, Russia has more than twice of any other country in the group. (Caulderwood) Another issue, as mentioned in the article, is how much impact can $100 billion really make? It sounds like a lot of money, but China’s GDP alone was over $8 trillion and growing, as of 2012. (World Bank and Caulderwood) Supporting the pessimistic view pertaining to the BRICS Development Bank is a Bloomberg article written by Mr. Jim O’Neill, a former chairman of Goldman Sachs Asset Management. He feels the BRICS countries do not have enough in common to properly run this new bank. He argues that their economies are vastly different, and so are their political systems. Some are more democratic (India, Brazil, and South Africa), while others are less democratic (Russia and China). (O’Neill) In conclusion, I still think it is worthwhile for the BRICS countries to start the BRICS Development Bank. However, I only see it as a small step in the big scheme of things. It is definitely not going to have a dramatic effect any time soon.

Works Cited:
1. Caulderwood, Kathleen. "What's The Deal With The BRICS Development Bank?"Investing.com. International Business Times, 25 Feb. 2014. Web. 25 Feb. 2014.

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