BREAKINGVIEWS - New bank plan risks dilution of emerging influence

MUMBAI Fri Mar 30, 2012 2:46pm IST

(From L-R) Brazil's President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma wave during a group photo for the BRICS Summit in New Delhi March 29, 2012. REUTERS/B Mathur

(From L-R) Brazil's President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma wave during a group photo for the BRICS Summit in New Delhi March 29, 2012.

Credit: Reuters/B Mathur

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MUMBAI (Reuters Breakingviews) - The BRICS are gaining global influence. But there's a danger of overstretch. A plan to create an institution with aims similar to the World Bank has some appeal, especially given the need to finance development; the desire to promote trade in their own currencies; and as a political show of strength. But an Emerging World Bank may diffuse the effort, capital, and talent dedicated to global economic development. BRICS may also struggle to secure their rightful influence over the world's established development bank.

Sure, the BRICS may argue that the World Bank is becoming irrelevant. China and Brazil's own national development banks already lend more. And in spite of incremental reform, the developed world continues to out-gun the BRICS in terms of senior personnel. So there is a case for going it alone. The policy objectives are compelling. The need to finance huge infrastructure development is particularly acute in India. And the desire to promote more local currency denominated trade plays to China's ambitions.

It has political appeal for BRICS leaders too. An Emerging World Bank would be a sign of power and prestige, and a testament to their collective ability to create an institution of global significance.

But the track record of regional development banks is hardly glittering. There's a long list of jobs for the boys and of political meddling. There's also the cost of financing the bank. The sovereign ratings of some of the members, who would collectively be the shareholders of a BRICS Bank, are barely investment grade. It would make more sense to increase their contribution to the World Bank's capital base and see it spend more on development.

It may be no more than a negotiating tactic, of course. By suggesting they go it alone, BRICS nations' real intention could be to focus minds, and build influence, in Washington. The BRICS certainly should focus their full attention on the bigger prize. For the first time an emerging market candidate looks like a contender for the World Bank presidency. Political, human and real capital would all be better spent in pushing for a greater say in how the World Bank is run and how it spends its cash.

CONTEXT NEWS

- Heads of state of the BRICS group of the world's most powerful emerging economies made up of Brazil, Russia, India, China and South Africa met in New Delhi on March 29.

- The emerging market nations support an expansion of the capital base of the World Bank and have agreed to look more closely at a proposal to set up a South-South development bank, India's Prime Minister, Manmohan Singh, said on March 29.

- The plan to form a joint development bank will have a hard time getting off the ground and would struggle to match the World Bank's expertise, World Bank President Robert Zoellick told Reuters in an interview on March 28.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own) (Editing by Robert Cole and David Evans)

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