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BRICS bank rattles the 'Washington Consensus'

Five emerging economies set up $100bn development bank, seen as direct competition to World Bank and IMF.
Last modified: 18 Jul 2014 06:02

FORTALEZA, Brazil – In a sprawling events hall in this sun-soaked, laid-back northeastern city, the leaders of the world's most important emerging economies dropped a sledge hammer to the so-called Washington Consensus and also took the most concrete step to show the BRICS alliance is more than just a catchy acronym.  

The leaders of Brazil, Russia, India, China and South Africa came together to sign by far and away the most concrete agreement in the six-year history of the BRICS group, the creation of the New Development Bank, a potential direct challenge to the World Bank/IMF, Washington-centric, grip on global lending.

Rousseff, Putin, Jinping, Modi and Zuma wanted the new bank to be taken seriously immediately, so they jointly committed to $100bn in initial capital.

After the agreement was done, I tracked down Luciano Coutinho, one of Brazil's most influential behind-the-scenes economic players.

Coutinho is the longtime president of Brazil's uber-powerful national development bank, the BNDES, and he was part of the Brazilian negotiating delegation for the new bank.

He called the new institution a "historic initiative and a breakthrough".

“It's coming in a moment in which there is scarcity in long-term credit for infrastructure and development not just for the BRICS but for all developing economies," Coutinho told Al Jazeera.

He estimates there is an immediate need for between $600bn and $700bn in new investment in infrastructure in developing countries.

Coutinho, and other officials at the meeting, downplayed the idea the creation of the bank was strictly an anti-World Bank and IMF move.

"The new development bank is an alternative," he said. "There is room for existing multilateral banks to increase their balance sheets and lend more. And the new bank is doing that. But the new bank is going to do so in a different channel."

There's little doubt the BRICS countries want deep reforms at the World Bank and IMF. Washington has dragged its feet and stalled. That might now change.

"The new bank puts pressure on the World Bank and IMF to reform, or else the new bank could become more dominant in BRICS countries," Kirill Dmitriev, the chief executive officer of the Russian Direct Investment Fund, told Al Jazeera.

"There were a lot of naysayers who said it would be impossible to create this bank, but I think it was very clear that BRICS leaders said, 'we will create a bank,' and they did," Dmitriev added.

Writing cheques is the easy part for BRICS countries. The more challenging part is going to be actually implementing the new development bank.

Coutinho told me he thinks if there is political will the new bank could be fast-tracked and start lending in less than two years. Optimistic, perhaps.

The doubters say the bank will only start lending when powerhouse China decides it wants to.

There's a reason, they say, the headquarters for the new bank was chosen to be in Shanghai, because China will be calling the shots.

But this bank might not even need to do much immediate lending to have leverage and influence. The simple, potential threat it poses to the global lending order could be enough to rattle the hornets' nest.

On Tuesday, as the delegations from each of the BRICS countries left the events centre and headed into the blazing late afternoon heat, they were all smiles as they jumped into their air-conditioned vans to be shuttled to the airport under police escort.

It was clear leaving Fortaleza, there was a consensus, but it wasn't coming from Washington.

The pressure is not on Shanghai. It's now on the US capital.

Competition is not a word that's part of the regular World Bank and IMF vocabulary.

It is now.

Follow Gabriel Elizondo on Twitter @ElizondoGabriel