The Brics Bank

Western countries formed and dominated global institutions, which have since been used to impose their will on weaker countries and in the process slowly taking control of the resources of these countries.  Several of the developing countries have now become large enough to act as a counterweight to western power; together they are called Brics. The problem, though, is if the Bric nations can sustain their economies find a way to work together.

When I saw Star Wars for the first time, I was still at school. It was one of the most amazing movies I have ever seen. The latest in the franchise, The Force Awakens, earned in excess of $2 billion, thereby exceeding the total collection of the first Star Wars trilogy. However, once earnings are adjusted for inflation, the original Star Wars movie (Episode 4) which collected   less than $800 million in 1977 is a bigger earner.  In fact Episode 4 is ranked third on the all-time box office list after “Gone With The Wind” and “Avatar” once we take inflation into consideration. The earnings from the movies have been supplemented by large product merchandising. While total box office earnings from the movies were $6 billion, franchise revenue has been estimated at 30 billion. Such has been the power of the Force, which, according to Jedi Master Obi-Wan Kenobi is “an energy field created by all living things. It surrounds us, and penetrates us. It binds the galaxy together.” The Force sounds much like economics and finance, does it not?

While in the Star Wars movies there is the tension between good and evil, there is also a tension between the rich northern countries and the poorer southern countries.  The reason western countries are northern is the result of the Mercator map. The world map we see today is based on the map drawn by Gerardus Mercator, who was born in the Flanders (today it is part of northern Belgium) in 1596 to help sailors navigate the world.   He placed Europe on top of the world, and distorted the size of the continents. This practice  continues today (Google Maps included), where North America appears larger than Africa when in fact Africa is three times the size of North America. Alaska and Greenland on the map appear larger than Mexico and China respectively, then the opposite is true. While the map also shows Scandinavia to be larger than India, India is in actuality three times the size of the whole of Scandinavia.

In the opening scene of Shakespeare’s play Macbeth, the witches chant, “Fair is foul and foul is fair.”  This is the tone of the west dominated world as well. For all its power, the Dark Side in Star Wars has never been able to control the flow of information. This has been one of the great successes of the West. They have  got us to measure ourselves by the yardstick of “western values.” Our intellectuals, instead of questioning this paradigm, are more eager to be patted by their Western colleagues. For instance, the British rule in India, where temples were being built of granite when the Europeans lived in mud houses, was justified by claims that Indians need to be civilised. By controlling institutions, the plunderers and murderers can project themselves as superior to others. (Interestingly, the original Star Wars movie had an all-white cast.)

Statecraft has not changed much since the mercantilists. It is about domination; it is about greed. It is about economics and finance. The west has been clever and united, while developing countries still continue with petty bickering. By building and controlling international institutions such as the United Nations (UN) and World Trade Organisation (WTO), western countries have been systematically taking control of global resources. The enrichment of these countries has historically been based on the suffering of others. Today, several developing countries have grown large enough to create a larger space for ourselves in the global scenario. By this, I am being hopeful that the Brics nations (Brazil, Russia, India, China and South Africa) are able to keep their squabbles aside and fight for our common rights, starting with global economics and finance.

The International Monetary Fund (IMF) and the World Bank are the outcome of the Bretton Woods conference in 1944. These institutions, which became operational in 1946, were set up to oversee the post-World War II global economy. Being part of the United Nations system, with both their headquarters located in Washington.  The IMF seeks to maintain an orderly system of payments and receipts between its member states. It also does make loans to member states, but these are aimed at solving balance of payments problems. The World Bank focuses on financing economic development in member countries. Though the war-torn European nations were the initial recipients of World Bank assistance, the focus has since turned to the development of third world countries.

Both these institutions have been effective in serving their members well as per their intended purposes. The World Bank presently lends out about US$25 billion per year, with a maximum loan book capacity of US$300 billion. The IMF has about US$58 billion credit outstanding, but it also provides extensive technical assistance to members.

The unhappiness among developing countries, especially the Brics, now with the IMF and the World Bank relates to the distribution of power within the organisation. Both these organisations follow the weighted voting system, where member countries have voting quotas based on complex formulae that are tied to their relative economic strength, namely the gross domestic product (GDP), external reserves, and exports. Hence, larger economies have greater voting quota. First among these is the G7 countries consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

The general perception is that both IMF and World Bank are at G7 behest. The G7 countries, who are the major contributors, have often been accused of bullying developing countries by imposing severe conditionals to borrowers. The G7 also insists the heads of IMF and World Bank must come from Europe and United States respectively. At the same time, although the share of the global output by Brics countries exceeds 20%, jointly they control only 11% of the voting power in the IMF and World Bank.

Against this backdrop, the Brics nations announced the setting up of the New Development Bank Brics (NDB Brics) or Brics Bank in 2013. In July 2015, the Agreement on the New Development Bank came into force. The bank is headquartered in Shanghai, with an initial capital of US$100 billion, of which US$50 billion will be paid up. The money will be used both for long term development loans and short term currency swaps to aid member countries with balance of payments financing. The incorporation of the Brics Bank is significant as it directly challenges the global order as defined by the G7.  A Chinese researcher predicted that   the Brics Bank will successfully break the monopoly of the IMF and World Bank, thus motivating the Bretton Woods duo to function more normatively, democratically, and efficiently.