Few disputed the unfair weightings in the IMF and World Bank of the BRICS companies. But Rajat Nag, a former Managing Director of the Asian Development Bank, warns of the pitfalls that await their Shangai-based New Development Bank
Arguing the case for the BRICS Bank was the easier part; China, though soon to be the world’s largest economy, has a shareholding at the IMF smaller than the Benelux countries. Brazil, with an economy almost three times the size of Belgium’s and a population about 18 times bigger, also has a smaller IMF shareholding.
As a group, the BRICS countries account for about 42% of the world’s population and about a fifth of the global GDP, yet just over a tenth of the shareholdings in the IMF. It is true that reforms are under way to give developing countries a slightly greater voice, particularly the BRICS countries, but the pace has been slow and rather hesitant.
No wonder then that the BRICS countries keenly desire a new international financial institution where they will have a strong say in keeping with their growing economic weight. There is also the issue of huge and largely unmet needs for the financing of infrastructure projects in the developing world, to the tune of almost a trillion dollars a year in Asia alone. The new BRICS institution could help to supplement the resources already being provided by international financing institutions like the World Bank and the regional development banks.
It wasn’t an easy or straightforward road that led to the clasping of hands of the five BRICS leaders at the Fortaleza Summit in Brazil in mid-2014, when they announced the creation of two institutions, first, the BRICS Bank itself, formerly named the New Development Bank, or NDB, with an initial capital base of $50bn, and second, the $100bn Contingency Reserve Arrangement (CRA).
A number of potentially very disruptive issues had first to be dealt with. China had initially suggested an ownership structure in proportion to each of the five countries’ economic size but this would have created a very lop-sided institution as China’s GDP is greater than the combines economies of the other four countries. After a drawn-out and difficult bargaining process, an equal shareholding arrangement was agreed on. In return, China would host the institution in Shanghai. The others were not left empty-handed as it was agreed that an Indian would head the institution for the first six years, a Brazilian would chair the Board of Directors, a Russian the Board of Governors and South Africa would host a Regional Office of the NDB.
Now comes the hard part: implementation. As well as the usual challenges that any newly-created institution faces, there are some critical issues the NDB still has to contend with. First, diversity. There is no denying that the five BRICS countries have more that differentiates them than they have in common. China’s economy is about 16 times that of South Africa; per capita GDP in Russia is about six times that of India. Two of the BRICS are permanent members of the UN Security Council, and have been every bit as reluctant as the U.S., the UK and France to admit others to permanent membership. Three BRICS countries are vibrant and often chaotic democracies, and have to contend with very different and demanding processes of consensus building.
In light of their diversity, it’s still far from clear how the NDB will formulate operational policies. Nor is it clear who the NDB will lend to and what its priorities will be. Will it be only to the BRICS countries themselves or will other developing nations be eligible to borrow? If the latter, how will those countries be selected? And within the BRICS, what will be the banks’ criteria for lending?
On top of that, there’s the thorny question of the cost of borrowing from the NDB. International financial institutions like the World Bank or the Asian Development Bank (ADB) operate on a very simple financial model; backed by the collective economic strength of their members, which include most of the advanced economies, these institutions enjoy AAA prime credit ratings – often better than the terms enjoyed by individual member countries. They therefore borrow on international capital markets at highly competitive terms, add a small margin and on lend those funds at rates lower and for longer maturities than national borrowers could have mustered on their own. With the NDB currently owned by only five countries, it is not clear what credit rating it will enjoy and thus both the volume and price of the debt funds it will be able to raise in the international capital markets remain uncertain.
There is also the matter of credibility. An important factor influencing the cost of borrowing is the NDB’s credibility. Its track record as a lender that upholds the highest standards in its lending operations has yet to be established; so nothing is still known of its governance methods or its respect for social and environmental safeguards. The new bank also has to establish its credibility as a borrower that repays its debt and enjoys sound financial health.
The demand for funds, particularly to finance infrastructure projects, is enormous in all five BRICS countries and throughout the developing world. The NDB will need to lend at a meaningful level each year, but its relatively limited initial equity base of only $50bn means its lending volume will be determined by the level of debt funds it is able to mobilize. That in turn will depend on the credit rating it can command.
The need will be for great attention by the NDB for its due diligence processes regarding projects, including on social and environmental safeguards. The long-term viability of NDB as an institution will depend on the viability of the projects it finances; so these will need to be technically and economically viable while upholding best practices in social and environmental safeguards. The financial viability of projects will need to be assured either by the direct beneficiaries or by the borrowing government. Any compromises on the project quality at entry and during implementation would over time compromise the NDB’s own integrity and its financial health.
How well the BRICS’ new institution builds a pipeline of bankable projects will determine the credibility of the NDB, and there should be no illusions that doing so will need painstaking efforts and time-consuming development of staff skills and operational policies. The new institution will need to guard against any relaxation of its the standards of due diligence, or in the design and preparation of projects out of a desire to respond to borrowing countries’ needs.
The rationale for the NDB is strong, and it should start to take shape in the coming months so as to be ready for business in 2016. But the rationale for the Contingency Reserve Arrangement is not so strong and still needs careful review. The idea is that the $100bn CRA’s pooling of the five countries’ foreign exchange reserves will be available for BRICS members to draw on in a crisis. The two major challenges are that, first, in a genuine crisis a fund as small as $100bn will be insignificant even for the smallest of the giant BRICS countries. Second, any doubts about the repayment capacity of a borrower would mean that the other BRICS countries might well be unwilling to lend without imposing tough conditions. This would be politically very difficult between sovereign states of a club whose members are deemed to be equal partners. Conditionalities and the monitoring of compliance would exacerbate the tensions of a partnership whose diverse interests risk making their working harmoniously together difficult under the best of circumstances.
An instructive footnote could be that the similar Asian arrangement of swap lines and credit was established with the Chiang Mai Initiative following the 1997 Asian financial crisis, but was never used, even during the 2008 global financial crisis. There is no reason to believe that the CRA will be any more successful. The architects of the arrangement themselves recognised the CRA’s potential pitfalls by including in its design a provision that any country drawing more than 30% of their swaps will also need to negotiate an IMF programme. In short, it may be better for the BRICS to focus their attention on the NDB rather than pursue the CRA too.
First published by the Europe’s World under title ‘The BRICS bank: Now for the hard part’. Reposted per author’s permission.
Democracy at Risk: The Global Challenge of Rising Populism and Nationalism
Authors: Meherab Hossain and Md. Obaidullah*
Populism and nationalism represent two discrete political ideologies; however, they may pose potential threats to democracy. Populism is a political ideology and approach characterized by the emphasis on the interests and concerns of ordinary people against established elites or perceived sources of power and privilege. Populist leaders often portray themselves as champions of the “common people” and claim to represent their grievances and desires. It is a political stance that emphasizes the idea of “the people” and often contrasts this group against “the elite”.
Nationalism, on the other hand, is an ideology based on the premise that the individual’s loyalty and devotion to the nation-state surpass other individual or group interests. It represents a political principal positing that there should be congruence between the political entity and the nation-state. While populism emphasizes the idea of “the people,” nationalism emphasizes the idea of the nation-state.
In what ways can populism pose a threat to democracy?
While some argue that populism is not a threat to democracy per se, others contend that it poses a serious risk to democratic institutions. Populism can become a threat to democracy by undermining formal institutions and functions, discrediting the media, and targeting specific social groups, such as immigrants or minorities. This threat arises from its potential to confer a moral legitimacy upon the state that it might otherwise lack. Consequently, it can jeopardize the defense mechanisms established to safeguard against tyranny, including freedoms, checks and balances, the rule of law, tolerance, autonomous social institutions, individual and group rights, as well as pluralism. Populism imposes an assumption of uniformity onto the diverse fabric of reality, distorting not only factual representations but also elevating the attributes of certain social groups above those of others.
In Turkey, President Recep Tayyip Erdogan’s populist rhetoric and policies have led to the erosion of democratic institutions, including the judiciary and the media. Populism in Turkey can be traced back to the era of Mustafa Kemal Atatürk’s regime, during which Atatürk’s elites, who had limited commonality with the broader society, assumed the responsibility of educating and guiding the masses. This phenomenon, often referred to as ‘regime elitism,’ has rendered Turkey susceptible to populism, which fundamentally revolves around the conflict between the elites and the general populace.
In Hungary, Prime Minister Viktor Orban’s populist government has been accused of undermining the rule of law, limiting press freedom, and targeting civil society groups. He has established a repressive and progressively authoritarian state that operates under the guise of democracy.
In media discourse, he has been designated as a populist leader. Empirical analysis reveals that Hungary is currently governed by a form of political populism, characterized as conservative right-wing populism. The salient features of Hungarian political dynamics encompass the government’s claim of challenging established elites, a lack of a clearly defined political agenda, the utilization of propaganda as a prominent tool in its political communications, advocacy for the preservation of a Christian Hungary, intervention in areas traditionally considered independent from state interference such as education and jurisdiction, the implementation of mass clientelism to reward its supporters while exerting pressure on critics, and overt criticism of non-governmental organizations (NGOs). Consequently, this trajectory underscores the ascendance of authoritarianism within Hungary.
How Nationalism can be threat to Democracy?
Nationalism can pose a potential threat to both democracy and international relations when it manifests in forms of discrimination, violence, and the exclusion of specific groups. The ascension of nationalism may jeopardize the established efficacy of multilateralism, which has historically been instrumental in preserving lives and averting conflicts. This can result in unilateral actions by certain nations, thereby undermining the collaborative approach to the peaceful resolution of disputes.
Nationalism can serve as a catalyst for conflict and division, fostering tendencies toward exclusivity and competition that impede the resolution of common global challenges. The ascent of economic nationalism has the potential to undermine global collaboration and policy alignment, resulting in a resurgence of nationalist economic strategies in many regions worldwide. Such strategies often prioritize individual national objectives over the collective global interest. Unrestrained nationalism can pose a threat to stability by inflaming ethnic tensions, thereby increasing the likelihood of violence and conflict.
In Europe, nationalism has historically been a significant catalyst for conflict and division, spanning from the emergence of Nazi Germany in the 1930s to more recent upsurges of nationalist movements in various countries. Nationalism tends to foster exclusivity and competition, thereby complicating efforts to address common global challenges. Under nationalist ideology, exemplified by Hitler, instances of extreme cruelty and inhumanity have been documented.
Another instance of nationalism, which presents a significant challenge to democracy, is the ascendance of Hindu extremism and nationalism in India, resulting in communal tensions. Since the Hindu nationalist BJP came into power, there has been a heightened sense of insecurity among Muslims in India, with the situation reaching unprecedented levels of concern. The government has actively employed media, television, and the film industry to propagate Islamophobia among the Hindu majority. In 2018, the Indian High Court rendered a judgment advocating for India to be declared a Hindu state, citing the country’s historical religious divisions. Nonetheless, it is crucial to emphasize that, in accordance with its constitution, India is mandated to maintain a secular state. Needless to say, the rise of Hindu nationalism under Prime Minister Narendra Modi has been accused of fueling sectarian tensions and undermining the country’s secular democracy.
Indeed, while populism and nationalism are distinct concepts, their simultaneous global rise poses a considerable threat to democracy. These ideologies frequently favor specific groups over the broader population and can corrode democratic principles. They tend to exacerbate polarization and undermine vital democratic institutions. Hence, many countries are grappling with substantial challenges to their democratic systems, which puts their stability and effectiveness at risk.
*Md. Obaidullah holds both a BSS and an MSS degree in Public Administration from the University of Barishal. He is currently employed as a Research Assistant at the Centre for Advanced Social Research in Dhaka, Bangladesh. His writing expertise spans various subjects, including Public Policy, Politics, Governance, Climate Change, and Diplomacy, on which he frequently contributes
Principles of International Relations as Homo Sapiens
After listening to Hariri’s Home Sapiens, I grasped, with a new perspective, the state of our humanity. I deeply realized that indeed we are the last human species. Our closest relative and competitor, the Neanderthals, were long gone. So how do we, as homo sapiens (“wise men”), wisely ensure the well-being and future of our species? The question seems too general or even irrelevant to many considering that everyday life on Earth continues despite the horrors of war, the devastation of calamities, and the forebodings of apocalypticism. But let’s not toy around with the destructive propensity and capability of our species which could have played a significant role in the demise of the Neanderthals and could also threaten our very own existence.
Life on Earth now is multifaceted and more complex than when we were still cohabiting our planet with other human species. The ancient “us and them” have become the modern and ironically complicated “among us,” and consequentially “us versus us.” We have become the only remaining human species—but the only remaining species that wants to destroy itself for self-interest.
Reflecting on the implications of our being the only human species left on Earth, I deduce the following principles for our international relations.
As one human species living on one planet:
The principle of cohabitation
We all have the rights to peacefully and productively cohabit on planet Earth without the sequestration of others due to superficialdiversity such as geographical locations, skin color, social ideology, and culture; or because of national or corporate resource exploitation.
The principle of mutual survival
We cannot survive without the human ecosystem. Human life is a multidimensional ecosystem. It cannot survive and thrive with only one feature or characteristic in one locality. It necessitates global diversity and mutuality. For our species to survive, our relations need to be based on mutual universal survival.
The principle of co-thriving
We cannot thrive secluded from the universal life system. Regression and destruction of one geographical locus, one ethnicity, or one natural feature impacts the whole bio-societal system. Inversely, the flourishing of one locus, one ethnicity, or one natural feature in conjunction with others, furnishes the whole human system to thrive.
The principle of developmental competition
We have both the latent propensity for destructive bouts and a penchant for developmental competition. International relations based on destructive bouts eventually inflect global crises. Global relations based on developmental competition advance our civilization. Each progress in a varied sphere, though will not be the same, complements the whole progression.
The principle of common home protection
We only have one home, one present habitat for our species to live and thrive, and one human family. Allowing these to decay will not only result in our degeneration but also the eventual risk of our survival.
As homo sapiens, we are at the top of the food chain and intolerant. We want to devour everything we can see and irrationally have the delusion of grandeur of being the only predator left. But the prey and the predator are one and the same. It’s not so naïve to outline what can be tagged as an idealistic theoretical construct. But let’s also accept the fact that the most influencing factors in our international relations are either commercially exploitive or ideologically invasive. And these are not sustainable and globally beneficial—for they are calculated goodness intended for the temporal benefits of the very few. The principle of the common good will enable us to see more beyond our present state and ensure the well-being and future of our species.
UN 2.0: Reimagining our global organization for a world in flux
Working towards better results on the ground and focused on the future, the UN family is undergoing a reset that will give rise to more agile, tech-savvy and impactful UN organizations.This transformation in skills and culture, encapsulated in the Secretary-General’s vision of a UN 2.0, is focused on fostering cutting-edge capabilities in data, digital, innovation, foresight and behavioural science – to deliver stronger results, better Member State support, and faster progress towards the Sustainable Development Goals.
During a roundtable with Member States, a group of UN leaders and experts explained the potential and strategies of UN 2.0. They highlighted early success stories, that, when replicated, will boost on-the-ground impact of a stronger, more flexible and modern UN.
This event came before the launch of the Secretary-General’s policy brief on the issue of a UN 2.0 revamp.
At the core of UN 2.0 is the so-named ‘Quintet of Change’, a powerful combination of data, innovation, digital solutions, foresight, and behavioural science solutions.
Opening the discussion, Melissa Fleming, the Under-Secretary-General for Global Communications, emphasized the need for change, highlighting that the progress towards the 2030 Agenda for Sustainable Development – adopted by all UN Member States in 2015 as a blueprint for peace and prosperity – is currently not on track.
Responding to the growing demand for reform, UN 2.0 represents a shift in how UN system organizations operate, aiming to accelerate progress towards the Sustainable Development Goals (SDGs).
Guy Ryder, the Under-Secretary-General for Policy, who brings extensive experience from his decade-long tenure leading the International Labour Organization (ILO), explained that the purpose of UN 2.0 is to equip UN organizations with the contemporary expertise required to be an effective partner for Member States in the twenty-first century.
A transformed UN leaves no one behind
Catherine Pollard, the Under-Secretary-General for Management Strategy, Policy, and Compliance, explained that the primary beneficiaries of UN 2.0 are the people the UN serves in its 193 member countries. “But equally important, UN 2.0 is about UN organizations themselves, because they will develop new skills, new talent, new purpose to better deliver our mandate.”
The UN continues to be a relevant player in the multilateral arena. To maintain this relevance, Ms. Pollard said, the Organization will develop employees’ skills, offer more training, attract new talents, and improve human resources policies.
Like many things in the modern world, UN 2.0 will be driven by digital solutions and cutting-edge technologies. Robert Opp, Chief Digital Officer of UNDP, the UN agency promoting international development, advocated for the potential that new technologies offer and contemplated on what the future can bring.
“AI is the current challenge, but there will be quantum computing and other breakthroughs around the corner, what we haven’t even anticipated,” he said, adding that when the ‘Quintet of Change’ is successfully implemented across the UN system, the Organization’s agility in responding to new challenges and in helping Member States will increase dramatically.
Data, digital innovation, foresight and behavioural science play key roles
The UN is actively supporting Member States in their pursuit of new solutions. A network of innovation labs has been established in more than 90 countries, serving as platforms for sharing new expertise in technology, data and other areas.
One notable success story comes from Indonesia, explained Faizal Thamrin, Data Scientist at UN Global Pulse Asia-Pacific. He illustrated how his team collaborated with the Government and thousands of small and medium enterprises to prepare for the future. Additionally, the team’s data analytics skills, combined with Indonesia’s experience, helped replicate early warning systems for natural disasters across the region.
UN 2.0 extends beyond data and digital solutions. Behavioural science, a multidisciplinary field that integrates insights from psychology, economics, communications, data science, sociology, and more, plays a crucial role in the ‘Quintet of Change’.
Claire Hobden, an ILO expert on domestic work, provided an example from Argentina’s informal sector. With support from UN colleagues, the Government was able to significantly expand social security coverage to domestic workers, such as nannies and caregivers, who are often hard to reach.
“Through a very small intervention we hope to be able to give more people access to social security, realizing their rights and access to decent work,” said Ms. Hobden noting the huge potential of replicating these methods, as there are 75 million such workers around the globe.
‘With new tools, we can do better’
In conversation with senior diplomats, Mr. Ryder emphasized that UN 2.0 is about potential of doing our job better “if we take a fresh look at some of the things we’ve been doing for a long time.”
Commenting on the journey ahead for UN colleagues, Mr. Ryder said “What you’ve done has been great. Now we have new tools. Let’s pick up those new tools, use them and maybe we can improve on what we’ve done before. It’s not saying what happened in the past was bad. It’s saying what we do in the future can be better”.
The event was co-organized by the Permanent Missions of Norway and the Republic of Indonesia to the United Nations in partnership with the Executive Office of the Secretary-General.
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