An acronym with capital

FOR years the BRICS countries have insisted they are more than an acronym. To dispel any lingering doubts, the leaders of Brazil, Russia, India, China and South Africa, who gathered in the Brazilian city of Fortaleza for their sixth annual summit on July 15th, announced the creation of two financial institutions: the New Development Bank (NDB) to finance infrastructure and “sustainable development” projects, with $50 billion in capital to start with, and the $100 billion Contingent Reserve Arrangement (CRA), to tide over members in financial difficulties.

On the surface, the NDB and the CRA, which must still be approved by the five countries’ parliaments, look like upstart rivals to the World Bank and the IMF, together the cornerstone of the post-war economic order. The BRICS complain that the Bretton Woods outfits, named after a New Hampshire town where they were conceived 70 years ago this month, give the developing world short shrift. China, whose economy is second only to America’s, has fewer votes there than the Benelux countries. America and Europe have proved shamefully slow to redress the imbalance.

Recipients of IMF cash also resent the tough reforms on which help is conditional, not to mention the lecturing tone in which they are dictated. In Fortaleza Vladimir Putin, Russia’s president, extolled the NDB and CRA as a way to prevent the “harassment” of countries whose foreign policy clashes with America’s or Europe’s (as did his annexation of Crimea).

The new institutions are not as subversive as they may seem, however, at least in their current guise. Unlike the IMF, the CRA is not a fund but a tangle of bilateral promises to make foreign reserves ($41 billion from China, $5 billion from South Africa and $18 billion each from the others) available to BRICS in trouble. Every country will be able to tap a multiple of its contribution. But, Mr Putin’s bluster notwithstanding, anything above 30% of that sum will be, as the instrument’s name implies, contingent—including on participation in an IMF programme.

The NDB, for its part, joins an alphabet soup of regional and national development banks the lending of which already dwarfs the $52.6 billion the World Bank disbursed last year. In 2013 BNDES of Brazil doled out $88 billion. Its Chinese equivalent made loans worth $240 billion. China is also creating an Asian infrastructure bank (which it has invited India to join but, for reasons of geography, not the others).

Even when the NDB’s capital eventually rises to $100 billion, including from non-BRICS states and institutions, it would leave most of the developing world’s infrastructure needs unmet. The World Bank estimates that South Asia alone requires $2.5 trillion over the next ten years. China was willing to chip in more. But India and Brazil, happy to use the bank as a politically palatable way to tap Chinese cash but wary of its dominance as much as they are of the West’s, insisted on an even split. South Africa could only afford $10 billion.

The politics don’t end there. A tussle between China and India over the bank’s headquarters, and between India and Brazil over who should hold the first five-year rotating presidency, nearly scuppered the deal. The BRICS leaders settled on Shanghai and an Indian, yet to be named. But a Brazilian is to chair the board of directors and a Russian the board of governors. They may not all pull in the same direction.

Herein lies the biggest obstacle to the upstarts of Fortaleza. Other than being big and developing (the reason why economists at Goldman Sachs, an investment bank, coined the term in 2001), the BRICS have little in common. The Chinese economy is 28 times the size of South Africa’s (not part of Goldman’s original grouping). Income per person in India is one-tenth that in Russia. True, all lack infrastructure but lively democracies (Brazil, India, South Africa) go about erecting it differently to authoritarian regimes (Russia, China).

Such disparities will make it hard to agree on even basic principles, like whom (other than themselves) to lend money on what terms or what counts as “sustainable development”, notes Douglas Rediker of International Capital Strategies, a consultancy. It took the Bretton Woods institutions decades to sort it all out, far from satisfactorily—and they are dominated by like-minded liberal democracies.