Zhu Jiejin / Ideas for the NDB’s institutional design
Zhu Jiejin / Ideas for the NDB’s institutional design
«The New Development Bank initiated by BRICS countries can reform and democratise global economic governance. But to reach this goal, in this critical period when the bank is preparing to operationalise, it must formulate an innovative institutional design. This article outlines four guiding principles for such a structure», - Zhu Jiejin, associate professor, Center for BRICS Studies, Fudan University, Shanghai.
The New Development Bank (NDB), the first multilateral development bank initiated by the five leading emerging economies— Brazil, Russia, India, China, and South Africa—will be a cornerstone in mobilising resources for infrastructure and sustainable development projects in BRICS economies, and in other growing economies and developing countries.
It will also, potentially, reform global economic governance and take it in a more multipolar, equitable, and democratic direction.
The idea of an NDB was first put forward by India in 2012 at the BRICS Summit in New Delhi. The bank’s first president will be K. V. Kamath, former chairman of Infosys Limited, the second-largest Indian IT services company, and the former non-executive chairman of ICICI Bank, India’s largest private sector bank.
In this critical period—from the signing of the Articles of Agreement in July 2014 to preparing to operationalise at the end of 2015—it is important to carefully formulate the institutional design of the NDB.
The starting point of the strategic role of the NDB is a new South–South cooperation. At this very point, four principles should be prioritised in the bank’s institutional design: equitable governance; market-based operation; non-intervention but adherence to high standards; and constructive supplement.
Equitable governance
Getting past concerns among BRICS members about China’s disproportionately greater economic power, the NDP has come up with the innovative institutional arrangement of equal subscribed capital and voting power. It reflects a principle of fairness, delinking the division of subscribed capital from the proportion of the GDP of BRICS countries in global GDP.
But this principle will have to be confirmed in practice. It is an experiment to democratise international relations in international finance, and its success depends on how well BRICS countries maintain it in the actual operation of the bank.
In the near future, the NDB must invite more members, especially developing countries from Asia, Africa, and Latin America. As leading economies, BRICS members can mobilise financial resources for developing countries in a new framework of equality and cooperation.
Market-based operation
As a platform for new South–South cooperation, the NDB must follow the market-based model of operating. This means that its officers and employees will not interfere in the political affairs of any member, nor will they be influenced in their decisions by the political profiles of the members. Only economic considerations will be relevant to their decisions, and these considerations must be weighed impartially in order to achieve the purpose and functions of the bank.
The NDB must use professionals and build a business operation model based on reasonable returns—that is, profit-making but not profit-maximising—and risk control systems and mechanisms. A market-based operation model will enable the bank to diversify sources of capital by including capital drawn from the market and other channels, aside from BRICS governments.
Non-intervention
The NDB’s mission is to achieve institutional innovation in the field of international development financing, and to explore establishing a more equal and balanced global development partnership. In keeping with this mission, the NDB must insist on the principle of non-intervention, respect the rights of developing countries to choose their own development paths, and ensure that developing countries have the necessary policy space.
At the same time, the bank should ensure a high standard of safeguard policies that are both strict and feasible. It should also improve on some of the safeguard clauses of existing multilateral development banks, which are tedious, impractical, and have little relation to their business. This will cut costs and increase the operational efficiency of the NDB.
In the initial stage, the NDB can invest more in sustainable development projects, such as new and recyclable energy. This will demonstrate the high standards of emerging economies in global economic governance, and their support for the needs of developing countries.
Constructive complement
As an incremental element of the international development financing system, the NDB’s major value will be its institutional innovation—and it can be a constructive supplement to existing multilateral development banks, rather than a competitor.
Given the huge financing gap in developing countries for infrastructure, funds from developed or emerging economies alone cannot meet this need. Moreover, emerging economies continue to support the reform of existing multilateral development banks. In the future, the World Bank and the NDB could cooperate by co-financing specific projects and by learning from each other’s ideas and experiences. This way, over time, they can build a new international development financing partnership that is better equipped to meet the needs of developing countries.
As for the Asian Infrastructure Investment Bank (AIIB) and the NDB, they have a mutually reinforcing relationship. The AIIB is Asia-focused, while the NDB is global (although as of now the AIIB has 57 founding members and the NDB only five). Both will follow a market-based operation model and have leaner governance structures, and both can learn from each other.
But as a new member of the multilateral development banks family, the NDB has a special identity—of new South-South cooperation. While it can learn from existing development banks about institutional design, it must also be innovative about its governance structure and operational policies in order to become a truly new global entity.