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Nobel Prize winning economist praises $100 bn BRICS bank created to counter Western dominance

Nobel Prize winning economist praises $100 bn BRICS bank created to counter Western dominance
Nobel Prize-winning economist Joseph Stiglitz has praised the new development bank founded this week by the BRICS countries for creating a financial institution that could counter the Western-dominated IMF and World Bank.

Stiglitz, a professor at Columbia University and former chief economist for the World Bank, said the New Development Bank marks a “fundamental change in global economic and political power.” He added that the effort by Brazil, Russia, India, China, and South Africa (BRICS) could revitalize the way funds are distributed to developing nations in a changing global economy that the “old institutions” like the International Monetary Fund and the World Bank have not adequately recognized.

“The existing institutions just don’t have enough resources,” Stiglitz told Democracy Now. “They have enough for 2, 3, 4 percent. So, this is adding to the flow of money that will go to finance infrastructure, adaptation to climate change—all the needs that are so evident in the poorest countries.”

On Tuesday, the group of emerging economies signed the long-anticipated document to create the $100 bn bank and a reserve currency pool worth over another $100 bn.

The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.

Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion. The BRICS bank will be headquartered in Shanghai, India will preside as president the first year, and Russia will be the chairman of the representatives.

Leaders representing Brazil, Russia, India, China and South Africa attend the VI BRICS Summit in Fortaleza July 15, 2014 (Reuters / Nacho Doce)

Stiglitz said the BRICS bank has the potential to “get more resources to the developing countries in ways that are consistent with their interests and needs” while forcing American-controlled institutions to recognize monetary and economic contributions of the BRICS nations that deserve a say in global investment decisions now dominated by the West.

“What I hear now is the developing countries, emerging markets, China and the other countries, saying, ‘We’re paying the tune. We’re the big players now. We have the resources. We’re where the reserves are. And yet, you don’t want to let us play even a fair share in the role, reflecting the size of our contributions in the economy, in trade,’” Stiglitz said.

“And so, that’s one of the real grievances—I think valid grievances. And it’s hard for an institution where the governance is so out of tune with current economic and political realities to be as effective as it could be.”

Stiglitz pointed out that governance rules for the IMF and the World Bank have not changed adequately enough since their creation in 1944, as the United States has refused to substantially modify its hold over the institutions’ functions.

“So, this new institution reflects the disparity and the democratic deficiency in the global governance and is trying to restart, to rethink that,” he said.

Despite the potential for the BRICS bank to revitalize the methods in which developing nations receive investment capital, Stiglitz said it’s too early to tell whether the five emerging-market nations’ effort will be considerably different from the older institutions. Nevertheless, the negotiations to this point signal a willingness from the nations to work together, he said.

“What it is really saying is that in spite of all of the differences, the emerging markets can work together, in a way more effectively than some of the advanced countries can work together.”