The beleaguered BRICS can be proud of their bank
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Print edition | Finance and economics
Sep 29th 2018
AS STORM clouds gather over emerging markets, the BRICS countries that were supposed to be the building blocks of a new globalised economy are instead in various degrees of trouble. Brazil and Russia are recovering only slowly from downturns. A sharp fall in the rupee reflects jitters about India. China is mired in a trade war with America. South Africa has slipped into a recession. Those who dismissed the BRICS as little more than a marketing acronym might feel justified in their cynicism. But at this moment of weakness, their most tangible creation—a bank that aims to reshape the world of development finance—is making surprising headway.
The New Development Bank (NDB), which is based in Shanghai, was founded just over three years ago. It has received far less attention than another multilateral lender launched a short time later, the Asian Infrastructure Investment Bank (AIIB) in Beijing. Take The Economist’s own coverage: a dozen articles have mentioned the NDB, whereas the AIIB has cropped up in roughly 60.
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This is understandable. The AIIB, with 87 members, is seen as a vehicle for China to project its power. China has an effective veto over it, its chief is a veteran Chinese official and America has refused to join. The NDB has only five members. All have equal stakes; none has a veto. They have also been the bank’s only borrowers so far. For those minded to view the BRICS as a joke, it is easy to dismiss.
But a closer look at the two banks shows that this would be unwise. They are roughly as busy as each other. The NDB has approved $5.7bn in loans, a touch more than AIIB’s $5.3bn. The AIIB has more full-time employees—180 to NDB’s 120—but both are adding to their ranks by the week. They both now have international credit ratings, making it easier for them to issue bonds. The three big rating agencies awarded the AIIB triple-A scores last year. In August the NDB received AA+ ratings, just a notch lower, from S&P and Fitch.
More striking, though, are their differences. Under intense scrutiny, the China-led AIIB has been at pains to get off to a smooth start. It is teaming up with incumbents more than challenging them: two-thirds of its loans have been co-financed by other big development organisations such as the World Bank. The AIIB has refrained from making any loans to Russia or Iran, which are under American sanctions. And it has denominated its loans in dollars, the normal practice for development lenders.
The NDB has taken on slightly more risk. Almost all its loans have been its own projects; just 2% are co-financed with other multilateral lenders. K.V. Kamath, the NDB’s president, says its goal has been to build its own expertise quickly. A fifth of its loans have gone to Russia. One of its biggest was a $460m deal to make the Russian judicial system more efficient—something almost designed to raise hackles in America. The bank has also vowed to lend in local currencies, in order to shelter borrowers from a stronger dollar. To manage its own balance-sheet, the NDB will do this only if it can raise local-currency financing, which it has done for just a few loans in China so far. But Mr Kamath says it hopes to issue rand bonds in South Africa later this year.
The NDB is even managing to win some admirers. “Why do we need another World Bank? The AIIB looks a lot like what’s out there. The NDB is looking more innovative,” says Gregory Chin, a specialist in economic diplomacy at York University in Canada. The BRICS’ walls are shaky these days. Their bank looks more solid.