BRICS (Brazil, Russia, India, China, South Africa) group of emerging powers have launched a USD 100bln development bank to be based in the Chinese city of Shanghai during the BRICS Summit in Brazil on July 14-16.

Banks.am has talked about the prospects of the newly formed bank with professor at University of International Business and Economics (Beijing, China), Current Affairs Commentator at China Central TV, Dr. Baocheng Liu.

- Dr. Liu, how long will it take to make the BRICS Bank an equal alternative to Western-dominated International Monetary Fund (IMF) and World Bank (WB).
 
-I do not think it necessary for the BRICS Development Bank (BDB) to benchmark or rival with IMF or WB either in its capitalization or in its operational mechanism. Over the beginning years, say 5 years down the road after its initial capitalization, it should be positioned as a unique alternative financial facility to cater to the needs of those member countries, primarily in infrastructure development programs, which helps alleviate the deficiency of IMF and WB. This is especially true considering the limited say of BRICS (with only 11% voting rights in aggregate) within IMF for example. The birth of BDB is partially provoked by the marginal position of BRICS within the Bretton Woods arrangement in retrospect of its awkward function combating the most recent financial crisis.

- Will BRICS Development Bank have any influence on allies of those 5 founder nations? For example, Russia is Armenia’s main trade partner. If we analyze this typical case how will Armenia benefit from it?

-The initial funding and investment will be contained within the 5 founding members. As the only concrete form of integration so far within BRICS, now that each founding member shall contribute equally, it remains a question as how long it might take for the pledged USD100bln capital to complete given the polarized size of their economies and the gap of their foreign exchange reserves. Therefore, there is a possibility for BDB members to raise fund from allied countries. However, considering Armenia’s foreign exchange position which is also on decline, I do not think this country is on the foray of funding source even after the USD100bln is completed. However, it does not mean that Armenia stands no chance with BDB. When Armenian economy and trade are on steady growth and its infrastructure construction presents increasing potential, it will be considered a recipient for BDB’s loan programs after it is fully funded. BDB may also join other financial institutions to offer syndicate loans.

- BRICS founding member Russia is also the initiator of the newly forming Eurasian Economic Union. How these new formed institutions can benefit from each other?

-It is of course the most ideal position Russia has been seeking linking BDB with the Eurasian Economic Union. This will help entrench Russia’s leadership as the “Big Brother” and reap benefit on their own. Nonetheless, I personally do not see a huge prospect of this Union, not only because of the economic similarities of its members, but more crucially, because of its inadequate experience operating in an open market integrated economy.

Baocheng Liu was interviewed by Narine Daneghyan