Russia Trumps West With BRICS Bank
Published: July 15, 2014 (Issue # 1819)
Top of the agenda at the sixth summit of the BRICS developing nations beginning Tuesday is the founding of two multilateral financial institutions designed to erode the dominance of the World Bank and International Monetary Fund as arbiters of the global economic system.
For Russia, the creation of a $100 billion BRICS development bank and a reserve currency fund worth another $100 billion is a political coup. Just as the West freezes Russia out of its own economic system as punishment for its politics in Ukraine, Russia is tying itself into the financial superstructure of the next generation of economic heavyweights: India, Brazil, China and South Africa.
The World Bank and the IMF have come under criticism from the rapidly developing BRICS, who together account for 20 percent of global GDP and 40 percent of the world's population. In their view, the two financial institutions are dominated by the rich nations of the G7 and attach stringent conditions to their lending that impinge on the economic sovereignty of its members.
Far from assuaging their complaints, efforts to reform the 70-year-old institutions have stalled. Proposed updates to the IMF that would grant increased influence to developing economies have been languishing in the U.S. Congress since 2010 and were blocked once again in April.
If the framework agreements due to be signed at the BRICS summit in Fortaleza, Brazil, are ratified at home, the new bank and the reserve fund could come just in time for the BRICS countries. U.S. tightening of the dollar supply starting last year has caused a wave of crises in developing nations as the cash inflows of the past decade begin to reverse themselves.
Meanwhile, the World Bank estimates the annual need for infrastructure investment in low- and middle-income nations at $1 trillion dollars and rising — far beyond its own capacity. The World Bank reports that it gave out $52.6 billion in 2013, not all of which went to infrastructure projects.
The New Order
Last week, Russian Finance Minister Anton Siluanov shed some light on the mechanics of the fledgling institutions.
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