22 July 2015
Brics’ New Development Bank (NDB) was officially opened for business in Shanghai on 21 July, according to the emerging economies bloc.
The NDB will have initial capital of $50-billion (about R618-billion), which will be expanded to $100-billion within the next couple of years. It was floated by Brics nations as an alternative to the World Bank and International Monetary Fund to boost infrastructure funding in the emerging economies and offer them tailor-made services.
India’s Kundapur Vaman Kamath is the bank’s first president. He attended the opening alongside Chinese foreign minister Lou Jiwei and Shanghai mayor Yang Xiong.
Kamath said the five Brics countries shared common goals and should continue working towards closer convergence between their countries.
Establishing the NDB would have a powerful influence on the global economy and its recovery, said Lou. “The bank will be a professional, effective, transparent and multilateral development institution of a new type. It will make a major contribution to infrastructure growth and sustainable development in the developing countries and emerging economies.”
Kamath, 67, who will be the bank’s president for the first five years, said he was confident of delivering on people’s expectations from the new bank, reported the The Times of India.
“Countries should closely co-operate,” said Kamath, a former executive of India’s largest private bank, ICICI Bank. “We will listen carefully to our members and try to offer tailor-made services for them.”
The Brics members – Brazil, Russia, India, China and South Africa – launched the bank at their seventh summit, held in the Russian city of Ufa on 8 and 9 July. The creation of the bank was prompted by efforts to finance infrastructure projects, mainly in member countries.
“The NDB will supplement the existing international financial system in a healthy way and explore innovations in governance models,” Lou said at a seminar following the launch of the bank. “Its creation is to meet the urgent demand of such countries in infrastructure construction and beyond.”
He said that the bank would complement the existing international banking system, instead of challenging it.
Co-operation with AIIB
It should co-operate with the Asian Infrastructure Investment Bank (AIIB), which was launched earlier this year on China’s initiative. “These two banks should exchange experience at the initial stage. After they launch operations, they should strengthen their co-operation and jointly encourage infrastructure development in Asia and around the world,” Lou said.
Following a meeting with the AIIB in Beijing, Kamath said, the NDB had decided to set up a “hotline” with the AIIB to discuss issues, and to forge closer ties between “new institutions coming together with a completely different approach”.
According to the NDB, each Brics member was to contribute an equal share in establishing startup capital. Each nation will also have an equal say in the bank’s management, regardless of gross domestic product size, according to its officials.
Unlike the World Bank, which assigns votes based on capital share, in the New Development Bank each participant country will be assigned one vote, and none of the countries will have veto power, the latter says.
However, Reuters reported that China had pledged to contribute $41-billion to the NDB, giving it the largest share of voting rights at 39.5%. Brazil, India and Russia would each contribute $18-billion, while South Africa would contribute $5-billion.
World Bank welcome
The World Bank welcomed the opening of the NDB, which will be headquartered in Shanghai, China. “We would like to congratulate Mr KV Kamath, president of the New Development Bank, and the founding members – Brazil, Russia, India, China, and South Africa – on this important occasion,” said World Bank President Jim Yong Kim.
“We are committed to working closely with the New Development Bank and other multilateral institutions, offering to share our knowledge and to co-finance infrastructure projects. These types of partnerships will be essential to reach our common goals to end extreme poverty by 2030, boost shared prosperity, and to reduce inequalities.”
The BBC reported that the NDB would lend money to developing countries to help finance infrastructure projects.
It is seen as an alternative to the World Bank and the International Monetary Fund (IMF), although the group says it is not a rival. “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way,” Kamath said.
The Brics nations have criticised the World Bank and the IMF for not giving developing nations enough voting rights.
The bank is expected to issue its first loans early next year.