Today in the news, the five leading emerging markets; Brazil, Russia, India, China, and South Africa, collectively referred to as ‘BRICS’ announced they moved past their impasse and agreed to begin set up their “bank”. The stated purpose of this bank is the BRICS attempt to “counter” the influence and “stranglehold” the Western global banking entities the International Monetary Fund (IMF) and World Bank have on world capital outlays. BRICS agreed in principle to set up this fund back in 2008, but progress was halted out of concerns from the other members over China wielding too much clout. Today though apparently the concerns of India and Brazil were addressed, while they will still contribute the same percentage to the fund, China will not be permitted to lead the fund for 20 years, reducing its control and influence. With this impasse over, the fund looks like it will become a reality.
What global implications, if any, will this fund have? The fund is going to start off at $50 billion, to grow to $100 billion gradually. This means $100 billion in capital will be available to countries around the world, mostly for developing countries, that otherwise would not for various reasons have access to IMF or World Bank funds. The main purpose of the BRICS fund is to lend money for infrastructure projects, if it succeeds in financing such projects to completion, growth and expansion of infrastructure will boost global economic growth. The influence and strength of BRICS cannot be understated, combined they represent nearly 50% of the world’s population and 20% of world GDP. A pool of $100 billion available is a significant sum for the developing world.
That being said, there is still a ways to go for this fund to be a reality. Russia and India both have histories of troubled relationships with China including border disputes (although much of the border disputes between Russia and China have been largely resolved). And all the countries in the BRICS have significant political and cultural differences, those must be overcome as well. Finally, one of the reasons many countries are having trouble getting IMF and World Bank funding is due to high levels of corruption, the very intended beneficiaries of the BRICS fund. That means, the BRICS fund managers will have to almost exercise as stringent control as the IMF and World Bank does, if they want the fund to succeed at its intended purpose. If a significant amount of loaned monies gets lost in corruption, the impact of the BRICS fund will be sharply muted. As of yet, none of the BRICS nations outlined any plan or proposal to address corruption.
The BRICS fund represents a new factor in the global game. How much a factor and how long remains to be seen. If the fund is largely successful, new business opportunities worldwide could open up. Particularly for those businesses whose products and services center around infrastructure. We at GBA will keep monitoring developments of the BRICS fund and keep you posted here.