Development Banks' Relative Capital Bases

Click to Enlarge

The sixth BRICS (Brazil, Russia, India, China, South Africa) summit began July 14 in Brazil. The three-day summit is expected to produce finalized plans for a new financial institution to be known as the BRICS Development Bank and a currency pool to be known as the Contingency Reserve Arrangement. The bank will start lending in 2016 with an initial capital base of $50 billion ($10 billion will come from each member), with plans to increase the capitalization to $100 billion over the next five years.

The institutions are part of a larger plan by non-Western developing countries to build lending mechanisms with fewer conditions than those imposed by multilateral Western institutions. It also represents an effort to insulate from future crises in the Western-led financial system, which will continue to dominate the world's financial markets, BRICS' efforts notwithstanding. Within the new BRICS mechanism itself, China will dominate because its economy and financial power dwarfs those of the other BRICS members.

At least initially, the BRICS Development Bank will be relatively small for a multilateral development bank. The European Investment Bank, World Bank, Asian Development Bank, African Development Bank and the Inter-American Development Bank all have capital bases exceeding $100 billion. But even at $100 billion, the Contingency Reserve Arrangement would quickly be exhausted in a global financial crisis (though it would prove helpful during a domestic or regional crisis).

While negotiating the details for the BRICS Development Bank, China wanted the initial contributions to be based on each country's size, like the Contingency Reserve Arrangement. China also wanted the initial start-up to be pegged at $100 billion and even offered to put up the rest of the money, but the other BRICS members quickly rejected the idea.

BRICS members share a desire for the new institutions to eventually expand to include other members of the developing world. For institutions on par with the World Bank or International Monetary Fund to arise from the developing world, the BRICS will need widespread support and involvement from other key countries. (The World Bank itself started out as a development bank designed to help rebuild Europe after World War II before growing into the global institution it is today.) There are dozens of potential members in the developing world that could join both of the new BRICS initiatives relatively quickly, but not all of them would have the start-up capital needed to expand the bank.

Comments

Why States Still Use Barrel Bombs

Smoke ascends after a Syrian military helicopter allegedly dropped a barrel bomb over the city of Daraya on Jan. 31.(FADI DIRANI/AFP/Getty Images) Summary Barrel bombs are not especially effective weapons. They are often poorly constructed; they fail to detonate more often than other devices constructed for a similar purpose; and their lack of precision means they can have a disproportionate effect on civilian populations. However, combatants continue to use barrel bombs in conflicts, including in recent and ongoing conflicts in Africa and the Middle East, and they are ideally suited to the requirements of resource-poor states. Analysis Barrel bombs are improvised devices that contain explosive filling and shrapnel packed into a container, often in a cylindrical shape such as a barrel. The devices continue to be dropped on towns all over Syria . Indeed, there have been several documented cases of their use in Iraq over the past months, and residents of the city of Mosul, which was re...

Russia Looks East for New Oil Markets

Click to Enlarge In the final years of the Soviet Union, Soviet leader Mikhail Gorbachev began orienting his foreign policy toward Asia in response to a rising Japan. Putin has also piloted a much-touted pivot to Asia, coinciding with renewed U.S. interest in the area. A good expression of intent was Russia's hosting of the Asia-Pacific Economic Cooperation summit in 2012 in Vladivostok, near Russia's borders with China and North Korea. Although its efforts in Asia have been limited by more direct interests in Russia's periphery and in Europe, Moscow recently has been able to look more to the east. Part of this renewed interest involves finding new export markets for Russian hydrocarbons. Russia's economy relies on energy exports, particularly crude oil and natural gas exported via pipeline to the West. However, Western Europe is diversifying its energy sources as new supplies come online out of a desire to reduce its dependence on Russian energy supplies . This has ...

LONDON POLICE INDIRECTLY ENCOURAGE CRIMINALS TO ATTACK RUSSIAN DIPLOMATIC PROPERTY

ILLUSTRATIVE IMAGE A few days ago an unknown perpetrator trespassed on the territory of the Russian Trade Delegation in London, causing damage to the property and the vehicles belonging to the trade delegation , Russian Foreign Ministry Spokeswoman Maria Zakharova said during the September 12 press briefing. The diplomat revealed the response by the London police was discouraging. Police told that the case does not have any prospects and is likely to be closed. This was made despite the fact that the British law enforcement was provided with video surveillance tapes and detailed information shedding light on the incident. By this byehavior, British law inforcements indirectly encourage criminals to continue attacks on Russian diplomatic property in the UK. Zakharova’s statement on “Trespassing on the Russian Trade Mission premises in London” ( source ): During our briefings, we have repeatedly discussed compliance with the Vienna Convention on Diplomatic Relations, sp...

ISDEI Instituto de Seguridad, Defensa y Estudios Internacionales

Search This Blog