+ BRICS ́ Development Bank: an early analysis of its possible role on the global economic governance + Structure  Global Economic Governance and Long Term Finance: why a New Multilateral Development Bank?  Why the BRICS?  Which Bank? + Global Economic Governance  Global Economic Governance: Defined as the connection of arrangements for rule-making, political coordination and problem-solving settled and resettled by different actors in the inter-state, international and transnational settings. It is basically the practice of governing beyond the state in a system characterized by competing jurisdiction or the lack of supreme authority (Sinclair 1999, Rosenau 1999, 2000a, 2000b, Keohane & Nye 2000, Murphy 2000, Held & McGrew 2007) + Global Economic Governance  Problems of the Global Economic Governance: the relatively atomized number of actors and diverse sources of power and authority contributes to create ambiguities and concerns about legitimacy, equality, democratic accountability and subsidiarity. It could be said that global economic governance is still incomplete, distorted and inelastic. + Global Economic Governance  Incomplete Due to a undersupply of a) services provided by international financial institutions, specially regarding long-term funding for non-advanced economies; b) global public goods, including adequate mechanisms for preserving and managing financial crises, and for guaranteeing global macroeconomic and financial stability; c) international counter-cyclical instruments (Ocampo, 2006). + Global Economic Governance  Distorted Implies that global governance structures tend to promote the interests of the most powerful states and global social forces. International economic order is somehow hierarchic, and the binding nature of legal and contractual commitments is usually inversely proportional to the financial power of states and agents: “law tends to be binding on the periphery and relatively more elastic at the apex of the financial system” (Pistor, 2013). In other words, global governance could reinforce international inequalities. + Global Economic Governance  Inelastic Difficulties that some institutions face to follow the fast changes in global economics and politics. Member state representations and governance structure are the most difficult issues to be addressed and reformed in Intergovernmental Organization. Reforms use to be slow and limited. This is part of the political economy of international organizations: member states that holds voting power and institutional influence don’t want to share it with other emerging powers, blocking reforms and major changes in the organization’s power structure. It means that some aspects of the global economic governance don’t even represent the current balance of power among states: it is not just unequal, but inelastic. + Global Economic Governance and Long Term Finance  As the provision of funding by the private international capital markets are restricted by several market failures, the Multilateral Development Banks (MDBs) have an important role on the Global Economic Governance.  Although there are currently more than twenty MDBs, the basic problems of the general Global Economic Governance – incompleteness, distortion and inelasticity – can be found in the provision of long term finance as well. + Global Economic Governance and Long Term Finance  Incompleteness of services for international funding: a) mismatch between the demand for and the supply of long term finance: the BRICS’ countries are estimated to demand US$ 9,1 trillion dollars on funding by 2022 (G-30) b) there are several political restrictions for additional increases on the capital of the existing MDBs (problem related with the inelasticity) + Global Economic Governance and Long Term Finance  Distortion and long term finance: a) the so-called “original sin” – external restriction due to the lack of demand for currencies of peripheral countries by non-nationals – widen the necessity of external loans for developing countries; b) MDBs conditionalities mostly express the interests of the G-7 countries that control the institutions through voting power and “soft power” influence + Global Economic Governance and Long Term Finance  Inelasticity and long term finance: The existing Multilateral Development Banks were created either in the post-Second World War (first agency of the World Bank) or in the Cold War contexts(other agencies of the World Bank and Regional Development Banks): their voting power structures reflects it, with very limited reforms + Why the BRICS?  BRICS (originally, BRIC) is the acronym created in 2001 by Goldman Sachs’ Global Economics Paper No. 66 ("Building Better Global Economic BRICs”,) and popularized in 2003, in article No. 99, entitled "Dreaming With BRICs: The Path to 2050”;  Representing around 40% of the world's population and nearly a quarter of its economic output, BRICS does offer promise of clout. The economic profile of the five nations, especially China, has continued to grow, with suggestions that BRICS collectively could become bigger than the US by 2018, and surpass even the combined economies of G7 by 2050. + Why the BRICS?  From 2000 to 2012, the share of the emergent and developing economies in the world’s total GDP has grown from 41% to 54%, while their participation in international trade rose from 23% to 39%, and international official reserves from 35% to 64%. Within this swing, Brazil, Russia, India, China and South Africa (BRICS) were privileged players. Their GDP represents 25% of the world’s GDP. At the same time, their financial power has increased at a past pace.  When we compare the numbers from the last 20 years, the increase of their share becomes even clearer. In foreign exchange reserves, we can note an increase from 40% of world’s total to 80% between 1990 and 2010. In the same period, the fixed investment share rose from 22% to 50% and they received 51% of global foreign direct investment (FDI) in 2010, almost three times of what they received twenty years ago, which has led them to be deemed as leading nations by both capital markets and global powers. + Why the BRICS? Relative Changes in World Income: All Emerging Markets vs Advanced (Ratio of Per Capita GDP) 0,5 0,4 0,3 0,2 0,1 0 1950 1960 1970 1980 1990 2000 2010 + GDP based on PPP share of world total (%) (1990- 2013) 30,00 25,00 20,00 Brazil China 15,00 India Russia 10,00 5,00 - South Africa Total + Intra-BRICS trade and BRICS trade with the world at large in 2012 + BRICS external trade with the world at large + Share of major economic groups in FDI outflows, 2000–2012 (% of the world) + BRICS’ Development Bank: which bank?  Idea first launched at the Group’s Summit in Seoul in 2010 (Indian Prime Minister Manmohan Singh);  Reserve Pooling Fund created in 2012: US$ 100 billion (China, 41; South Africa, 5; Others, 18 each);  BRICS’ Bank: US$ 50 billion of initial capital disbursed equally by the Groups’ Members.  New Development Bank aims to:“mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries” through loans, guarantees, equity participation, technical assistance for projects, and the provision of additional financial services. + New Development Bank (NDB)  NDB’s initial authorized capital stock is US$ 100 billion. The initial subscribed capital stock, US$ 50 billion, was equally distributed among the four funding members (25% in paid-in shares and 75% in callable shares). The voting power of each member equals its subscribed shares in the capital of the bank. Increases of the authorized and subscribed capital stock also need “special majority.” Moreover, voting power of members is subject to a 6% ceiling for individual non-founders, a 20% ceiling for non-borrowing members (developed countries), and a 55% floor for founding members. +  To be defined: Conclusion a)Scope (loans limited to BRICS’ countries?) b)Governance Structure (Voting Power/Capital Assignments; resident or nonresident Board of Directors/institutional autonomy) c)Operation (Tradition MDB’s operation or Mini-lateral Export Credit Agency?) d)Sectorial priorities (infrastructure? Private companies? Local governments?) e)More conditionalities (benchmarks and best practices? Are alternatives? Transparency and social and environmental exigencies)? there f)Financial strategy and risk policy (gearing ratios; relationship between capital, equity, and level of disbursement; loans to borrowing countries with ratings below investment grade; proportion of concessional loans; capitalization policy)  NDB can significantly offset long-term funding shortages for emergent and developing economies. The new bank further contributes to diminishing the distortions of Global Economic Governance by funneling resources to fund projects in the non-developed world. Additionally, through competition, it stresses traditional powers to push forward IOs reforms, loosing their institutional inelasticity + Authors and Contacts Thank you Luiz Pinto ([email protected]) Marcos Reis ([email protected])