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World leaders from key emerging economies met here in Delhi yesterday and agreed to begin the process of creating a new development bank.

The agreement was one of the primary outcomes in the BRICS meeting of officials from Brazil, Russia, India, China, and South Africa, as outlined in the “Delhi Declaration.”

The summit, the first of which was held in 2009, is an important meeting of large developing economies potentially offering a different model of development from the Northern-backed status quo. The term “BRIC” (which at that point did not include South Africa) was coined by a Goldman Sachs economist to claim that these countries, which account for about 40% of the world’s population, could outpace Europe and North America in terms of growth by 2025.

BRICS already account for nearly 30% of the global economy and (in 2011) about half of global growth. But so far the jury is still out on whether or not the BRICS grouping will be in a position to deliver on the potential for developing an economic model that differs significantly from those of Europe or North America.

One positive move in the Delhi summit was the decision to begin a shift away from trading in the U.S. dollar – the de facto international currency – and increase trade in the five nations’ currencies.  Most international trade uses U.S. dollars; shifting away would decrease countries’ vulnerability to the dollar’s increasing volatility, weaken the advantage the U.S. has in world trade, and help to even out the political and economic global power imbalances.

It would be natural to hope that a development bank created by developing countries would adopt more pro-poor approaches than, say, the World Bank, but  early indications are not promising.

Sources indicate that the focus of the BRICS Bank would largely be on infrastructure. Depending on what model of infrastructure expansion the Bank would use and what social and environmental safeguards would be in place, this could have adverse affects on local communities who may face displacement due to dam, road, and port construction. The same sources seem to indicate that the BRICS Bank would function along the same lines as the World Bank and the Asian Development Bank, institutions which have a mixed record in terms of promoting development. According to its own evaluations, about 30% of projects that the World Bank undertakes result in unsatisfactory outcomes.  The World Bank also attaches loan conditions that promote neoliberal economic policies – privatization, export-orientation, trade and investment deregulation; a BRICS Bank should rule out interference in countries’ economic policies.   

It’s worth noting that there is an alternative. In 1955 developing countries came together in Bandung, Indonesia, in the context of the Cold War, and agreed to provide development financing for  countries not aligned with either the Soviet Union or the U.S.. Though the proposed financing mechanism never came about, such a fund would have been designed based on principles of solidarity as opposed to the deregulated “free” markets  on which most development assistance today is predicated.  

The fact that many of the BRICS countries were part of that history means that there is a decision to be made – let’s call it “Solidarity or the Status Quo”.  And it’s not at all clear which way these countries will go. Other similar groupings – especially IBSA, an alliance of Brazil, India and South Africa that came out of the failed trade negotiations in Cancun in 2003 – seem to be more actively pushing the solidarity alternative. That’s not to say that the BRICS grouping might not go in the same direction, but at the moment it seems to be pushing some form of the same old market-based “solutions” that have failed to significantly reduce poverty or reduce inequalities – but this time in the service of a new group of elite countries.