The New Development Bank is the answer of emerging economies to the Bretton Woods twins – IMF and WB, which have been the last resort of countries that have landed in economic mess due to either sheer mismanagement or politics of populism. The NDB may not pose in the end any threat to the established soft lender but will force over time both IMF and World Bank to look at short-term liquidity pressures faced by Asian, African or South African countries in a more considerate manner, and give up their one-fit fits all approach. Also, yes, with less concern for geo-strategic issues.
It was last year at the Fifth BRICS summit in Durban last year that gave the go-ahead to the idea conceived at the fourth summit held in New Delhi in 2012. As South China Morning Post (SCMP) says, the proposal was affected by the usual fears of Chinese domination since Beijing is well ahead of other BRICS members with a strong yuan which has been giving the dollar a run on the bourses.
By purchasing power parity (PPP), the IMF puts the combined GDP of BRICS nations at an impressive $24.04 trillion – roughly fifty per cent higher than the American GDP, which is estimated to be around $ 16 trillion. Now amongst the five founders, China is miles ahead with a PPP of $13.39 trillion. India, which projects itself as an economic super power in the making is nowhere near the Chinese bench mark. It account for just $5.07 trillion followed by Russia ($2.56 trillion), Brazil ($2.42 trillion) and South Africa ($0.60 trillion). Other countries like Argentina, which are knocking at the BRICS doors for membership has long distance to cover to be counted as big economies.
The fears over the Chinese financial muscle were not allowed to steal the thunder, largely because of Indian leadership in the run upto the latest summit in the Brazilian capital, and the NDB has become a reality with the five members contributing equally to the initial capital and also for a contingency reserve arrangements. This contribution is $ 10 bn each at present.
This equitable contribution of the founding members will prove to be the NDB strength with no one dominating. There is a provision to gradually hike the corpus to $100 bn and to allow investment by various global trusts at a later date to increase the financial muscle of the venture. More resources at its command will make NDB an active player in bailing out countries in liquidity crisis.
The Contingent Reserve Arrangement (CRA) will have an initial subscribed capital of $ 100 billion. While India, Brazil and Russia will pump in $ 18 billion each, China will contribute $41 billion and South Africa the remaining $5 billion. The CRA is designed to provide a buffer to the NDB founders in times of a balance of payments problem.
There has been a perception that India had reservations on NDB setting up its headquarters in Shanghai, the financial capital of China. India’s worry was never where the bank would be located and in fact it had no problems with Shanghai. Its concern is more mundane – NDB becoming a victim of distortions that have afflicted the IMF-WB – ADB with the domination of super economies.
Such possibility has been averted with all the NDB founding members getting equitable say, as advocated by India. Fittingly enough, India will provide the first chief executive to the new bank.
—-By RAM SINGH
