Last year, the BRICS nations (Brazil, Russia, India, China and South Africa) agreed to create a new multilateral development bank to fund unmet infrastructure investment and related needs.
On Monday, pioneering Indian banker KV Kamath was appointed as the first president of the bank for five years. Mr Kamath’s distinguished career as a professional banker and a corporate leader will stand him in good stead in building the foundations of an institution that is being billed as a counterweight to the West-dominated organisations such as the IMF and the World Bank.
In terms of territorial and demographic size the BRICS is perhaps the largest among similar groupings. Add the combined economic might and the alliance’s influence in shaping a new world financial order can be forceful enough for the traditional powers to take note.
The grouping has also decided to set up a contingency reserve arrangement (CRA) — a $100 billion fund to help weather currency storms among member nations. In effect, these economies can lean on each other’s economic strengths through the BRICS or the New Development Bank and the CRA. Translated this means these economies want to use any borrowing from the IMF only as a last resort.
The BRICS group emphasises the interconnectedness of economies in the age of globalisation and is serving as a strong pressure faction within the G20. In many ways, institution-building is akin to nurturing an individual.
The first steps, tentative as they may be, are also the most crucial. For the BRICS Bank, the immediate challenge will be to ensure that the institution addresses diverse concerns after factoring in challenges that are unique to each country.
The principal premise on which the new institution has been set up is to avoid the very kind of centricity that the other banks are often criticised for. For instance, there is a school of thought that the IMF imposes stringent, politically challenging conditions that BRICS and other emerging economies want to avoid.
That said, in the new geo-economic calculus where emerging markets are the primary global growth engines, an organisation such as the New Development Bank was an idea whose time had long come.