At the UN Development Cooperation Forum (DCF) in July, there was a lot of discussion about whether South-South cooperation is complementary to North-South cooperation or if it is unique. Having a BRICS bank would definitely give Southern countries more power in international institutions. But would South-South cooperation through a formal development finance institution really be different?
At the moment, BRICS donors say they define aid differently and they use different aid instruments. Also, they have been engaged as donors for a long time, although they may not have formal aid agencies. The emphasis is on countries being both donors and recipients in ‘development partnerships’. China and India are known to use loan and credit instruments and conditions that the IMF, World Bank, Development Assistance Committee donors restrict or are hesitant to use. With respect to issues like human rights or labour standards, the point of view is that it should be discussed at the multilateral level and not shoved into development finance contracts.
At the DCF, BRICS donors repeatedly said that South-South cooperation should be voluntary and commitments should be adapted to countries’ capabilities. But they will need to make some hard and firm commitments in order to support a new development finance institution. The difficulty will be in balancing the commitment to the BRICS bank with domestic politics around poverty. For example, India has more poor people than all the Least Developed Countries combined.
The BRICS bank will need to help refine the concepts, methodologies, best practices and data around South-South cooperation. The policies it will likely have to take on will include:
- Infrastructure development
- Increasing domestic resources, developing local financial markets and SMEs
- Focusing financing on underfunded sectors and developing country enterprises rather than multinationals
- Investigating policies for financial stability, including a financial transaction tax
- Managing trade barriers, including product standards that come from private sector regulatory schemes
- Evaluating energy, water and agriculture subsidies
- Researching best practices for negotiating with extractive industries
- Evaluating the effect of development policies on women and youth.
- As you can see, a BRICS bank would face a number of challenges. Fair or not, they will have to show that they can do development better.
This article was first published on 28 September 2012 on the Globalization and Development blog