BRICS New Development Bank – Promoting Reform with an All-Win Strategy
The BRICS members are representatives of these developing countries. The foundation of the bank, its future development and the challenge it poses to the World Bank to a certain extent embody the expectations of developing countries.
As a matter of fact, the so-called challenge is a driving force for the World Bank to change its ways, or rather, its criteria. If the World Bank refuses to reform under such pressure, it will face the consequences of its inherent structural weaknesses, rather than from the challenge of the NDB.
At the end of the fiscal year 2011, the IBRD’s total assets amounted to US $313.9 billion and its total subscribed capital reached US $193.7 billion. Once the NDB accomplishes its capital contribution scheme, its capital amount may surpass that of the World Bank.
The Inevitable Choice of a Multipolarized World Economy
Data from the International Monetary Fund (IMF) show that just after the end of the Cold War, developed countries accounted for 83.6 percent of the global economy in terms of nominal price, with the U.S. alone monopolizing 26 percent. The share of developing countries and economies in transition stood at just 16.4 percent. The BRICS countries contributed 5.7 percent and China, two percent.
The situation has changed over the past decades. In 2012, developed countries took up 61.9 percent of the world’s economy in terms of nominal price, and America’s contribution fell to 21.9 percent. The portion of non-Western countries rose to 38.1 percent while that of BRICS members increased to 20.7 percent. China contributed 11.5 percent, increasing from less than eight percent of America’s portion to 52 percent.
Calculated by purchasing power parity (PPP), the proportion of developed countries’ economic aggregate in the world economy dropped from 64.3 percent to 49.8 percent from 1992 to 2012. In the same period, the figure of non-Western countries went up from 35.9 percent to 49.9 percent, surpassing developed countries for the first time. Meanwhile, the proportion of the Group of Seven’s economic aggregate in the global economy decreased from 51.4 percent to 37.8 percent and that of the U.S. declined from 22.8 percent to 18.9 percent. The figure of BRICS countries increased from 15.3 percent to 27.2 percent and China, from 4.3 percent to 14.8 percent.
According to a report on global governance released by Fudan University earlier this year, the above numbers imply that a multi-polarized world economy has roughly taken shape. Moreover, as the economy in non-Western countries grows faster than that of the Western world, the structure of multi-polarization will be more stable in the future.
Chen Zhimin, a professor at Fudan University, points out that against the above-mentioned background, the establishment and the future development of the NDB is the inevitable consequence of the decaying legality of the international order that was set up predominately by Western developed countries. Under such framework, the NDB and its subtle relationship with the World Bank can be taken as an embodiment of the efforts by developing countries to create an alternative organization that is independent of the current system.
Financial Risk Prevention for Developing Countries
It should be noted that when talking about the impact and challenges posed by the NDB to the World Bank, Western press and researchers often ignore a fact, whether intentionally or unintentionally. Before proceeding with the establishment of the NDB, BRICS member countries, especially China, first tried to promote the reforms of the World Bank and the IMF. But attempts were always met with a cliché – the U.S. administration obtains substantial cooperation and rewards by making various sugar-coated promises, but the legislative and judicial authorities never hesitate to use their veto power to renege on such promises. Then the administration complains that it is willing to help but unable do so because of the separation of powers in a modern legal state and, despite everything, hopes the BRICS countries will treat the U.S. as well as before, without considering its track record of bad behavior.
Any change is still in the early stage. The masses of developing countries, although they have made considerable achievements in terms of economic aggregate, are still under development and, thus, are vulnerable. After it had put forward the BRIC concept, Goldman Sachs then developed a series of similar terms including CIVITS and MINT. However, these concepts never became as popular as the BRICS; neither did they succeed in building a new quasi-entity that resembles the BRICS. The reason partly lies in Goldman Sachs’ own problems but mainly in the vulnerability of emerging economies and developing countries, and the uncertainty that comes with their development.
That is why the establishment of the NDB has strategic significance. It allows developing countries and emerging economies, which are often in an unfavorable position when faced with complicated global economic and financial situations, a financial risks prevention and control mechanism that they can independently run and fully control. Moreover, it provides a reliable source of funds to facilitate the structural reforms and further development of BRICS countries.
