Saturday - May 27, 2017

Is the End of the World Bank nigh?


Is the End of the World Bank nigh?

The emerging economies of Brazil, Russia, India, China and South Africa, known in global financial circles as BRICS produced something of a bombshell during the annual conference held on July 15th and 16th in Brazil.

During the course of the two-day meeting, BRICS, comprised of the five largest emerging markets in the world, announced that they had approved the long expected creation of their own financial institution, which will be known as the BRICS Development Bank and will be initially financed to the sum of $50 billion, backed up by a $100 billion reserve fund.

China, Russia, India, Brazil and South Africa, have all agreed to invest an equal $10 billion in the soon to be formed BRICS Development Bank.

According to financial commentators, the BRICS initiative was largely born out of the group member’s frustration with their perceived lack of participation in global financial governance, particularly when relating to the World Bank and the International Monetary Fund, although to a lesser extent.

The reason for their frustration is that economic growth in the five BRICS member countries is expected to grow by an average of 5.37 percent this year, which is around 50 per cent of growth achieved seven years ago, at the head of the global economic collapse.

Feeling particularly put out apparently is the Brazil and Russian governments whose economies are expected to grow by just 1.3 percent and 0.5 percent, respectively.

With the new BRICS Development Bank being initially funded with $ 50 billion, hopes are among its members that the bank can enjoy added leverage and flexibility on fund a number of its own projects as well as provide financial assistance to other emerging economies.

While the capital raised by the BRICS initiative is considerable, it fades into insignificance when compared to that of the World Bank, which has a current subscribed capital of $223.2 billion, generated by 188 countries.

The World Bank’s largest shareholder is the United States who holds 16 percent, while BRICS member China is the third biggest, with $12.86 billion or 5.76 percent, of the World Bank’s total capital, while Brazil, Russia, India and South Africa’s contribution to the World Bank is reported to be considerably lower.

The International Monetary Fund has $315 billion in immediately available resources with a reported $1 trillion in reserve, with the U.S., being the largest contributor. China has committed to contributing $41 billion to the reserve, approximately three times more than it has contributed to the actual fund.

Although its relative size may be small in comparison to the existing giant funds, what has created a stir in global financial markets is the willingness of the BRICS members to commit more resources to their own initiative than the existing ones expresses a willingness and strong desire to change the current system which they regard as being flawed.

A situation which will leave the U.S. and its principal financial allies unsure of whether the BRICS member countries might eventually considerably reduce or even withdraw the funding to the IMF and the World Bank, making for a considerable veiled threat to the powers that be on the global financial map, which enable them to become more accommodating to the wishes of its emerging nations.

Photo credit: Presidential Press and Information Office – http://eng.kremlin.ru/news/22676

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