On July 15, during the latest BRICS Summit at Fortaleza, Brazil, the five countries of the BRICS Group (Brazil, Russia, India, China and South Africa) announced the establishment of the New Development Bank (NDB), a new international development bank aimed at assisting international development in the global South. The five countries also agreed on a Contingency Reserve Agreement (CRA), setting aside funds for emergency situations and to solve short-term liquidity crises.

What was once a Goldman Sachs acronym meant for businessmen looking for opportunities to tap new markets has now become a bloc of countries claiming to be the leaders of the developing world. The establishment of the BRICS institutions has given rise to much interest and speculation in the West.

Grievances Against IMF

The NDB and CRA are the latest institutions established in response to the Western-dominated international financial system. Set up at the end of the Second World War to avoid repeating the mistakes of the Great Depression, the Bretton Woods institutions were meant to act as the lender of last resort and provide governance over the international economy. Since then, the Bretton Woods institutions have acquired a rather sour reputation among developing nations.

The perception that the West dominates the Bretton Woods institutions is hard to disprove. Both the IMF and the World Bank are headquartered in Washington, DC. In the World Bank, only the United States holds vetoing power, while in the IMF, the United States alone controls 16.75% of voting power, while the BRICS combined hold only 11.03%.

The Bretton Woods institutions are also accused of acting on behalf of the West as interventionist powers. Whereas the IMF is meant to provide emergency funds in the crisis situations, often aid comes with strings attached. The IMF will subsequently work towards restructuring economies, forcibly opening markets for Western investors and imposing harsh austerity and fiscal responsibility measures. Developing and emerging countries from Brazil and Russia to South Korea and Argentina (where the government recently defaulted much to the ire of American creditors) blame IMF restructuring programs for historical or current economic woes. In the South Korean case, heavy-handed intervention in the aftermath of the 1997 Asian Financial Crisis (1997 AFC) resulted in harsh austerity measures and near-excessive Western acquisition of Korean assets. Public anger against the IMF and perceived economic neo-colonialism remains to this day in South Korea, where the 1997 AFC is called the IMF Crisis.

Dissatisfaction with the current Bretton Woods institutions have left developing countries searching for alternate funding sources. In the aftermath of the 1997 AFC, Asian nations set up a currency swap called the Chiang Mai Initiative to pool resources should another crisis arise. The Bank of the South was established in 2009 also to circumvent use of the Bretton Woods institutions for South American states. However, neither has been used to date. Furthermore, none of these initiatives sought to directly challenge the Bretton Woods institutions on a global scale until now.

The rising power of emerging economies, particularly of China, combined with Western economic debilitation during the 2007-08 Global Financial Crisis (GFC) has convinced the BRICS that they can now carve their own destinies. As the BRICS themselves say, the BRICS combined make up 41.6% of the world’s population, 19.8% of global GDP, 16.9% of total global trade (combined value of exports and imports), and their combined GDPs grew more than 300% in the last decade. They deserve more than 11.03% of voting power and condescending Western negligence.

What’s at Stake

As the BRICS countries come together to establish new institutions, they pledge to do things differently from the Bretton Woods institutions. The NDB will practice an equal voting system, with all of BRICS having one vote in the Bank. The idea is that as collective leaders of the developing world, all should have equal say in NDB matters.

Beneath the façade of cooperation however is an arena broiled in politics. Of particular interest are Russia’s interventionist intentions and Indian and Chinese competition for global leadership.

For Russia, increasing international pressure from the West has forced Russia to look East and beyond for much needed cash and support. The NDB is the perfect candidate for such a support base. Perhaps the NDB will end Russia’s dependence on the Bretton Woods institutions. Should this come to pass, Russia will be more emboldened in its actions knowing it can afford to lose sympathy from the West.

For India, the NDB provides much needed catalyst for Modi’s new presidency. The Modi Administration’s publishing of the first budget had led to some disappointment due to lack of direction. For Modi, this was a chance to re-galvanize enthusiasm for his administration by showing global leadership. Yet, much to India’s disappointment, high expectations for the BRICS institutions have been dashed. India was the party that fought the hardest against China during negotiations, wishing to base the NDB in India rather than China. The compromise was that the first President of the NDB would be Indian, but it is clear that India must look elsewhere to reach its potential and exercise leadership.

For China, nothing short of global leadership is at stake. Being the richest of the BRICS nations, China sees itself as the natural leader of the BRICS and sees the potential to use these new institutions to widen its global influence. The decision to place the headquarters of the NDB in Shanghai as well as China’s large contributions to the CRA clearly signals China’s dominance in the group.

The BRICS Institutions also lend China a much-needed chance to bolster its reputation abroad. China’s aid is notorious for propping up authoritarian states and for turning a blind eye to the benefactors’ human rights abuses. Chinese aid is largely perceived to be merely a tool in China’s overall geopolitical strategy. While it is clear the American government uses aid to further national interest, the IMF and World Bank help “legitimize” American aid, making it more politically palatable. The BRICS institution promises to fulfill the same function for China, with the CRA’s objective of non-interference also matching up nicely with China’s own protocol of non-interference.

Future for the BRICS Institution?

Many see the NDB as a potential rival to the IMF and World Bank. Some may even see it as the latest development in an ongoing Sino-American rivalry, with the newly established Shanghai-based NDB rising to challenge the Washington-backed IMF. Others still, including the World Bank President Jim Yong Kim, believe the new institutions can complement the Bretton Woods institutions.

Whatever the viewpoint, it is clear that there are still many questions going forward for the NDB and CRA. The first concern is simple. There seems to be a lack of overall vision and inner coherency for the NDB and CRA. The BRICS countries indeed have little in common with each other. The starkest difference is that Brazil, South Africa and India are democratic, while Russia and China share authoritarian systems. China’s economy is 28 times the size of South Africa’s. Some have even speculated that the only thing holding the BRICS together is their dealings with China. In contributing to the NDB pot, China had wished to shell out more, but South Africa could only spare $10 bn. Constrained by equal contributions and equal voting power, the Chinese had to lower funding for the NDB from $100 bn to $50 bn, already exposing a potential problem in the BRICS institutions.

Second is a concern over leadership capabilities. None of the five BRICS countries have extensive experience governing multilateral organizations. Perhaps the Shanghai Cooperation Organization (SCO) of China, the Eurasian Economic Union (EEU) of Russia, South African participation in the African Union and Brazilian participation in Mercosur may count as multilateral experience. However, the former two are seen as extensions of national ambitions rather than true instances of multilateral governance, while all of the mentioned organizations are restricted in their membership by continental and regional lines. In terms of leading a global front, all five BRICS will find themselves experimenting and improvising, without the IMF’s wealth of experience gained from decades of consensus building and programs.

Another valid question is whether the BRICS Bank merely reflects the Beijing Consensus. Considering clear Chinese dominance of the BRICS, speculation arises as to whether China through the NDB will truly provide a voice for emerging economies, or whether the NDB is only an extension of China’s national ambitions. The BRICS countries accept Chinese leadership only with great caution. While all are eager to use the BRICS institution as an expedient way to gain access to Chinese cash, they are mistrustful of Chinese intentions in leading the BRICS institution. The levels of mistrust combined with the lack of coherence leads to serious questions about the potential effectiveness of the institutions.

Finally, the effectiveness of NDB and CRA themselves are in serious question. Both the NDB and CRA have small cash pools, with $50 bn and $100 bn respectively. While the NDB seeks to provide developmental loans to the developing world, development projections by the World Bank for South Asia alone estimates $2.5 trillion over the next 10 years. Argentina’s recent default saw it drop about $15 bn in debt. Should Argentina, along with many other developing countries, look to the NDB and CRA for an IMF workaround, those institutions would likely face such challenges.

It’s still far too early to predict the trajectory of the newly established BRICS institutions, but its clear that many challenges still remain. If the BRICS institution can gain traction and become a powerful international financial institution, it might very well become the IMF’s next competitor or partner, depending on whatever trajectory the BRICS set. It’s difficult to tell whether the BRICS institutions will become an extension of Chinese economic diplomacy, a formalized way to gain access to Chinese funds, or a truly multilateral institution reaching out to the developing world and providing an alternate voice to a global economy dominated by Bretton Woods.

The views expressed by these authors do not necessarily reflect those of the Glimpse from the Globe staff, editors, or governors.

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Syria, Iraq and Ukraine have been reduced to shambles. You’ve seen it all over the news: terrorist turned caliph, Abu Bakr al-Baghdadi, and his Islamic State watch as their influence and power spreads like wildfire across the Levant, while pro-Russian opposition groups wreck havoc throughout the Ukraine, shaking the establishment of the Iraqi and Ukrainian governments at their cores. Millions of refugees and internally displaced persons across the regions suffer from inadequate resources and fear they may never return home again amidst oppositional invasions and airstrikes in cities like Mosul and Snizhne. Thousands of miles away from the comfort of our living rooms we wonder how these states descended into chaos so rapidly in the past few years and why attempts at reigning in their power prove ineffectual at best.

Yet, the leadership in two of these regions has emerged from the entropy unscathed, and, by some accounts, more powerful than ever despite the chaos unfolding within their borders. Bashar al-Assad began his third presidential term last week despite condemnation of Syria’s elections by the European Union, the United States and UN General Secretary Ban Ki-Moon as unfair and illegitimate. According to a recent Gallup poll, Vladimir Putin has enjoyed an 29% increase in his national approval rating this past year, no doubt in response to Russia’s invasion of Crimea and destabilizing role in Eastern Ukraine.

Meanwhile, Syrian political groups remain mired in intense intra-group conflict over how to handle their current domestic situation. With the current split system between Bashar’s Damascus and the opposition-led Aleppo government, little hope remains for any semblance of legitimate rule.

In Iraq, Prime Minister Nouri al-Maliki has been blacklisted and blamed by leaders in the Gulf States and Iraq’s own general public for failing to quash the rebel fighters edging their way towards Baghdad. Mired in gridlock as Parliament members attempt to form a new government, the hope for order and stability in Iraq seems fleeting for the near future.

How do Putin and Assad continue to reign with such unchecked power given the fierce opposition by their own citizens –as seen in the Pussy Riot protests and by free speech advocates being arrested for “violating public order”–and, by and large, the Western world? Without question, Russia’s star has risen astronomically in the global political arena over the past year. Damascus, thanks to the generosity of Putin’s government, has greatly increased its military power with Russian-made jets used to hunt down oppositional militias. Al-Baghdadi and his troops have captured the Al-Omar gas field in central Syria, increasing their economic power and threatening the very core of the Iraqi energy sector. Though by no means exclusively, ‘iron fist’politics, tangible gains in national interest and popularly supported cronyism are the three driving factors in the success of Bashar, al-Baghdadi and Putin.

Dominant leadership has proved crucial to the success of Putin’s Russia. Since 2000, his charismatic authoritarianism has pushed the country to the forefront of the political arena. By setting a precedent of swift, no-holds-barred action against opposition groups during the Second Chechen War, Putin enjoys popular support as a leader who demonstrates potency and has a clear vision for the future. Bashar too continues to hold absolute rule despite the scattered battlefields across the country, authoritatively quashing rebel groups with brutal barrel bombs and leaving millions displaced or in flight from their homeland. Al-Baghdadi’s Islamic State has also risen as an effectual political and military model that wins citizens’support thanks to welfare services and public works projects, despite grave ideological differences within the group’s vision of a caliphate and fundamentalist fueled sharia law.

All three leaders also boast a clear grand strategy for what they perceive as the public’s interest. Putin’s vision of Russian exceptionalism, reiterated in his speeches to the people, now inspire a new wave of popular support throughout the country, and his actions in Crimea and the rest of Ukraine reflect a prototypically powerful Russia rising from the ashes of the USSR’s breakup in 1992. Pro-Russian rebel forces now control the majority of Eastern Ukraine –including the area where Malaysian Airlines MH-17 was allegedly shot down by opposition forces with Russian-supplied surface-to-air missiles–further illustrating their influence. In Bashar’s inaugural speech last week, he called for a greater focus on caring for the people of Syria, decrying attempts from the West to uproot existing order in the country and promising to protect the Syrian people against further bloodshed. While his declarations of victory of terrorism don’t ring true for Syrians in Aleppo still recovering from last week’s airstrike, his military and political capabilities will undoubtedly keep Syria safe from international threats and slowly but surely defeat the Free Syrian Army from within its borders. Al-Baghdadi’s comprehensive public works campaigns and acquisitions of oil and gas fields in both Syria and Iraq have won the support of citizens and business leaders alike who hope to cash in on the loot.

Yet, the widespread, intricate cronyism that ties the three together is the most damning evidence of all. Reports recently surfaced that the Islamic State may be selling Syria oil and gas through secret back channels, even though the Syrian government vowed to “eliminate” the extremist Sunni terrorist organization, which it considers a threat to Bashar’s presidency. Russia too has joined in on the action, providing the Syrian regime with weapons and jets to combat their civil war, seeing value in defending a vital economic and political ally in the Middle East.

Sustained growth by these three powers gravely threatens American political and economic interests; yet, the US has proposed ineffectual sanctions that, while crippling to Syria and Russia’s economy, have done little to nothing to ease tensions and render solutions. Putin hasn’t batted an eyelid: the creation of the $100 billion BRICS Development Bank poses a serious threat to both the US dollar and the influence of Western-based lending institutions like the World Bank and IMF. While a three-front war in the regions would be strategically challenging and politically impossible, more direct action must be taken in Iraq, Syria and Russia. While America’s presence in Iraq is growing, its purely advisory role lacks the necessary punch to rid Iraq of ISIS.

While war hawks and some leaders in the US want to sustain the country’s role as the international police force for conflict and corruption around the world, it is clear that a majority of Americans want to focus on domestic economic and political rehabilitation. Ultimately, the country may no longer be able to foot the bill, either economically or politically.

The views expressed by these authors do not necessarily reflect those of the Glimpse from the Globe staff, editors, or governors.

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