Trade offs for the BRICS Bank Integration into the International Financial Architecture
Background • South Africa joined the BRICS in 2010. • It is a commitment that comes with great prestige as well as responsibilities. • There is a need for South Africa to transcede from a middle income country to a high income country • But the transition is bedevilled by a lack of funds
Background • According to Dube (2013),South Africa stands to benefit from its involvement in the BRICS in the areas of: • Trade • Foreign Direct Investment(inward) and • Human Capital formation • In this vein it is crucial that the NDB which South Africa is a founding member of to integrate into the international financial system as this will expand the benefit that the BRICS will provide to SA in the aforementioned areas.
Introduction • The involvement of international organizations and private stakeholders may enable large capital infusion at times of contingency as well as provide specific experience and expertise for NDB’s operations
Bank’s Dilemma • It is going to be crucial to engage stakeholders who hold compatible ideological views as far as the development mandate for the bank and its methods and terms of providing finance is concerned. • It will be just as crucial to balance relations with existing international and financial institutions for funding and expertise.
Bank’s Response • This presentation will illustrate strategic initiatives that the Bank will have to pursue given the conflicts existing between its developmental mandate and the sources of finance and expertise needed to achieve the same mandate.
Goals Bank has to Achieve Goal Mechanism Indicator Finance sustainable and energy efficient projects that will Investment in renewable energy projects and energy efficient Reduced cost per kiloiwatt hour economic output improve the blocs energy security technologies. Fund research among academic institutions and sponsor Increased knowledge base from which to formulate policy to Increase knowledge creation within the BRICS bloc collaboration among them. drive the BRICS institutions. Intergrade the New Development Bank into the Global Financial Engaging in borrowing and lending arrangements with existing Increase in the ratio of Yuan to USD denominated international Architecture. and future international financial institutions worldwide. investment flows. Mobilizing resources for infrastructure and sustainable Equity investments,bonds,guarantees by the Bank. Amount of money raised for infrastructure projects development projects in BRICS Investing in sustainable developmental projects aimed at Poverty reduction among developing countries. improving the livelihoods of disadvantaged groups within the bloc Gini Coefficient and in developing countries. Provide Social Housing Accelerated RDP program or social housing schemes Number of people housed under social housing scheme Provide social infrastructure e.g. roads, hospitals and schools Deliberate infrastructure build program Reduction of infrastructure backlog in BRICS countries Extending funding to developmental projects in developing Utilise NDB funding to fund developmental projects in Improved social development outcomes as a result of NDB countries, that existing financial institutions are not willing to developing countries. financing. fund.
Current Player Position Map
Current Feasibility
Consequences of Achieving Goal Type Player / Identity Size Timing Import. BRICS Central Banks: Increased As soon as the Bank gets Administrative Fund mobilisation, disbursements Huge High operational and oversight obligations BRICS Governments: Increased As soon as the bank gets Beneficial Huge High policy and financing options operational Developing Countries: Additional Financial borrowing capacity with limited Huge As soon as Bank gets operational High political conditions Financial IMF: Reduced uptake of loans Huge When Bank goes operational High World Bank: Reduced uptake of Financial Huge When the Bank goes operational High loans and technical assistance Civil Society: Added monitoring Indirect Huge As soon as Bank gets operational Medium and evaluation obligations
Players Vested Interests Player / Interest Type Priority BRICS Central Banks: Maintain monetary policy autonomy Self-Interest Medium BRICS Governments: Independence from American Ideological High Hegemony Civil Society: Whether the Bank will include Humanitarian High developmental objectives among its funding objectives. Hedge Funds: Opportunities to find yield for uninvested Financial High funds IMF: Maintained loan uptake from developing countries Financial High and maintenance of economic influence UNCTAD: Establish ideological influence on the Bank Ideological Medium UNDP: Establish ideological influence on the Bank Ideological Medium World Bank: Maintained loan uptake among heavily indebted economies and maintenance of economic Financial High influence WTO: Sustained trade facilitation through trade potential unlocked by the additional funds flowing amongst the Organizational High BRICS and to other developing countries.
Potential Coalitions to Achieve Goal
Obstacles and Opportunities Player name Opportunity Obstacle Enhanced monetary policy cooperation and information BRICS Central Banks Incongruent monetary policies in place exchange Insufficient knowledge about emerging economies and negative Hedge Funds Economic growth opportunities in developing countries risk perception of these as investment destinations and go between for funding to developing countries Heavy indebtedness of developing countries that might create a Extend funding and technical assistance to the New Bank to IMF hindrance to any kind of additional funding being availed under extend its influence. the dispensation of the NDB Differing development ideologies between UNCTAD and the Bank UNCTAD Involvement in a new development paradigm as far as economic development is concerned. A development dogma steeped in Bretton Woods ideologies of UNDP The creation of a new development paradigm development. Could extend its influence by collaborating with the bank given a Existing ideological differences that exist between the Bank and World Bank background of infrastructure development opportunities the World Bank available in the region that the Bank intends to operate WTO Better trade arrangements for global trade Need to maintain status quo because of financial interests
Strategies to Achieve Goals Player Strategy and Actions Challenges Timeline Persuade non-mobilized to take a position of support, by promising them benefits compared to other policies.: Involve them in the decision Civil Society makng of the bank by giving them a platform to Financial. Logistical. As soon as the Bank gets operational air their veiws of what the Bank should be prioritising in developing countries such as the BRICS. Create a new organization or partnership of existing organizations and individuals, to involve non-mobilized: Create an organisation that will Hedge Funds Expertise. Trust. Finance As soon as Bank gets operational look out for the risk perceptions of private investors to ease concerns and enhance involvement. Negotiate with the opposition, and offer concessions on other policies of interest, in Access to political leadership. Long drawn out exchange for reversal of opposition.: Engage negotiations that could cost time and money. IMF As soon as bank gets operational with IMF to find ways with which the Bank could Reduced clout due to choosing to collaborate with them in the development negotiate,Could lose supporters finance arena.
Strategies to Achieve Goals (cont.) Persuade opponents to weaken their position, by adding desired goals or mechanisms to the Trust. Vested interests on the part of Rating Ratings Agencies policy.: Letting the Rating Agencies measure Ongoing Agencies who could be biased. the value of the Bank's paper according to their standards Change decision-making processes, in order to Finance to set up organisaiton. Staffing for the prevent some opponents from participating.: UNCTAD organisation. Technical expertise to run the 1-3 years Create an alternative BRICS based trade organisation. organisation Persuade opponents to weaken their position, by adding desired goals or mechanisms to the Political support Drawn out negotiations that UNDP policy.: Engage in negotiations to build a working From when the Bank goes operational will hamstring development relationship that will benefit both the Bank and UNDP Persuade opponents to weak their position, by adding desired goals or mechanisms to the World Bank policy.: Incorporate economic management Economic:Adjustments in economic structures From when the Bank goes operational principles that are compatible with opponenents into lending criteria. Meet with opponents to seek common goals or mechanisms, and thereby reduce the intensity Negotiation expertise. Experienced and WTO of their opposition.: Find ways to collaborate knowledgable teams to arrange terms of 1-5 years with WTO and seek better trade arrangements negotiations. Time. Money to fund negotiations for the output from the bloc
Current Player Position Map
Future Player Position Map
Current Feasibility
Future Feasibility
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