South Africa’s finance minister has hit back at criticisms in Western financial circles of the five Brics countries’ attempt to create a New Development Bank.
Nhlanhla Nene said the NDB, often called Brics bank, was not a “stillborn” institution, as Emerging Markets called it on Thursday.
“We only concluded the establishment of the bank a few months ago. So it would be a bit unfair to say that nothing has happened, because it is actually happening now,” he said.
Emerging Markets had reported concerns among development finance experts that the NDB could struggle, either because its five sponsors would not be able to agree on the details of projects — for example, wanting to favour national contractors — or in the case that one country suffered severe financial difficulties.
Brazil, Russia, India and China are the other four large emerging market countries backing the NDB.
“Countries now have to ratify the capital of the bank,” said Nene. “We have agreed on the entire logistical arrangement, it just has to be ratified in the respective country capitals. The Brics bank was first proposed in 2013 in South Africa, and we have already sealed on the contingency reserve arrangement and on the creation of the NDB. We have made great progress.”
INNOVATIVE HELPLINE
The contingency reserve arrangement, or CRA, is one of the most innovative aspects of the Brics’ initiative. It is a $100bn pool of reserves countries may be able to draw on, and required an operational agreement between banks of member countries.
The CRA could be useful for states, like South Africa, with large current account deficits. South Africa’s jumped from 4.5% of GDP in the first quarter to 6.2% in the second.
South Africa is already a potential candidate for the CRA. “We have our options and it is important to have more than one option,” Nene said.
South Africa also enjoys some advantages among the emerging market group. “Even though South Africa is the smallest economy among the five Brics, the CRA gives us a better advantage because we can draw twice the amount of capital [that we have to contribute]. We put $5bn in the capital of the bank, and we can call on $10bn [as part of the CRA],” Nene said.
Officials from another Brics country acknowledged that the ratification process might be slow and that an interim board of directors would have to start discussing the initial strategy to be implemented in the next five years.
Nene sees specific advantages for his own region. “There is an estimated backlog of investment in infrastructure in Africa of some $9bn per year,” he said. “If we have an additional institution to complement existing investment, the Brics bank will have an important role to play.”
The NDB is opening a South Africa office.
ALTERNATIVE TO WASHINGTON
As activists were leafletting delegates outside the International Monetary Fund building yesterday and calling for the US to join the Brics’ initiative, some analysts praised the new emerging giants’ effort.
“Both the IMF and the World Bank are controlled by Washington. It is bad for the world, it is like dictatorship,” said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington.