It is heartening to observe that developing countries, led by China and other BRICS members, have successfully organised alternative sources of credit flows aiming for financial stability, growth and development. By avoiding IMF-type loan conditionalities and the dominance of the US dollar, these new institutions provide a much-needed change in the global financial architecture.
This assumes significance in the context of the demands being imposed on Greece by the troika of the IMF, the ECB and the EU. That the troika should persist with a narrow disciplinary approach speaks of the limitations of the current system.
These limitations bring to the fore the need for institutional alternatives. The launch of financial institutions by BRICS may achieve a superior global financial order.
The financial institutions set up for the purpose include the Asian Infrastructure Investment Bank (AIIB), the BRICS (or New) Development Bank (NDB) , the BRICS-led Contingency Reserve Fund (CRF), and the Silk Road projects.
As for the CRF, scheduled to start lending in 2016, the five BRICS members have agreed to earmark $100 billion from their foreign exchange reserves to be used for swap lines. China contributes $41 billion, Brazil, Russia and India $18 billion each, and South Africa $5 billion. In other words, CRF is largely funded by China. While controversies relating to the propriety of the NDB have fizzled down to some extent, the installation of the AIIB portal in June has rekindled the debate questioning the legitimacy of such institutions led by China.
The AIIB's initial capital of $100 billion, while funded by contributions from members of BRICS, is open to contributions from non-members from advanced as well as developing countries, thus making for 57 founding members despite the opposition by the US and Japan. The UK was even subjected to reprisals by the US which continues to oppose the idea of an Asian bank led by China.
The AIIB is commended as a vehicle for providing credit for infrastructure in developing countries, the need for which, by 2020, would be between $1.8 billion and $2.3 billion. It would reduce the dependence of countries on official sources, which in any case is meagre. The opposition to BRICS institutions from advanced countries indicates the mindset of Bretton Woods institutions and their patron, the US, to continue with the asymmetric power relations.