Two things have happened recently:
- BRICS Bank has been formed – with subscription by Brazil, India, Russia, China & South Africa
- AIIB: The Asian Infrastructure Investment Bank formed by India, China and 19 Asian economies.
Aim of the Regional Banks:
- Multilateral Financial Institutions – viz. World Bank & IMF – are West dominated. reforms in governance structure has been so far stalled by Western nations
- The Lending Agenda of these MFIs are different from that of the development Agenda of the developing economies.
- Lending from MFIs are conditional – acceptance of which may be difficult as has been seen historically (Read Why India Gandhi was forced to devalue currency)
- So the quick solution is – Form your own banks to meet your development agenda – primarily infrastructure development
Pros of Regional Banks
This can be derived from the above points itself.
- Easy borrowing by developing nations
- More democratic control by participants
- Borrowing by regional banks from other larger institutions will depend on the sovereign rating of the largest participant – China (both a positive and a negative), hence borrowing will be cheaper for the less developed economies.
- Can be used to finance the development of trans continental infrastructure – Like North South Corridor, BMIC Corridor, India-Myanmar- Thailand Trilateral Corridor etc.
- Countries need not go for ideological changes for getting aid – No need to open markets , as demanded by WB, IMF etc.
Cons / Negatives of Regional Banks
- Banks will be dominated by a single country – say China
- Lending may be controlled on the basis of strategic interests – Possible clash between India – China, for instance.
- At least the IMF and WB are not dominated by a single interest.
- Will the consortium be able to create a huge pool size for funds?
You may add more points , but this article pretty much takes 280 words, excluding this line.
