Can the BRICS Have Their Own World Bank?

Indian Prime Minister Manmohan Singh, Chinese President Xi Jinping, South Africa President Jacob Zuma, Brazil's President Dilma Rousseff and Russian President Vladimir Putin pose during the BRICS Summit on Mar. 27, 2013 in Durban, South Africa Photograph by Sasha Mordovets/Getty Images8

The five countries known as the BRICS have 43 percent of the world’s population, $4.4 trillion in currency reserves, and generally healthier economic growth than Europe and the U.S. Yet to their frustration, Americans and Europeans still dominate policymaking at the World Bank and the International Monetary Fund.

Should the five—Brazil, Russia, India, China, and South Africa—create their own development bank and crisis fund?

BRICS leaders, concluding a summit meeting in Durban, South Africa, today pronounced the idea “feasible and viable.” They also made clear, however, that it won’t happen soon, as they failed to reach agreement on how such institutions would be financed and governed.

That’s hardly surprising. Despite their monolithic-sounding name, the BRICS don’t have much in common with each other. China’s economy is by far the largest of the five, totaling roughly the annual output of the others. China is the world’s largest exporter; India struggles with a growing trade deficit. The countries’ economic-management policies run the gamut from strong state control to largely free market.

True, the BRICS have impressive financial firepower, especially China, which accounts for $3.3 trillion of the total $4.4 trillion in currency reserves. But, asks Charles Robertson, an emerging-markets economist at Renaissance Capital in London, “in reality, does China or Russia want to see their currency reserves bailing out unsustainable macroeconomic policies,” as the IMF is regularly asked to do? Moreover, Robertson says, it would take years for a BRICS version of the IMF to “create a staff of economists and experienced professionals” who could manage such bailouts.

Nor is it clear what role a BRICS development bank would play, alongside existing institutions such as the World Bank, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank.

One possibility, Robertson says, would be for such a bank to foster mutually beneficial investments among the BRICS themselves. For example, it could finance pipelines to bring Russian gas to China or pay for infrastructure projects in Brazil that would be built by Chinese construction companies.

But the idea that the BRICS can quickly build a counterweight to the World Bank and IMF is “naïve,” says Martyn Davies, chief executive of Frontier-Advisory, an emerging-markets research group in Johannesburg. Unlike the Western nations that agreed to set up the World Bank and the IMF after World War II, the BRICS “have no common ideology,” he says. “The glue that’s required is not there.”

Before it's here, it's on the Bloomberg Terminal.