BRICS Bank Begins Global Expansion

7 September 2021 Leighton G. Luke, Research Manager, Indo-Pacific Research Programme

In joining the New Development Bank (NDB), outward-looking Uruguay will conceivably feel very much at home among the countries of the Indo-Pacific. It will be looking to the NBD to help further those linkages as it continues to diversify its economy and further reduce its dependence on its large recession-prone neighbours.

 

Background

The New Development Bank, established by the BRICS countries (Brazil, Russia, India, China and South Africa) in 2014, has launched its Global Outreach Programme by extending membership to the United Arab Emirates, Bangladesh and Uruguay.

The three new members – two Indo-Pacific countries and, arguably, the most socially inclusive and economically successful of Latin American societies – are intended to be just the first of many as the NDB seeks to become ‘the premier development institution for emerging economies’.

 

Comment

Headquartered in Shanghai, the NDB was established at the sixth BRICS Summit in Fortaleza, Brazil. Under the Fortaleza Declaration:

… the leaders stressed that the NDB will strengthen co-operation among BRICS and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to collective commitments for achieving the goal of strong, sustainable and balanced growth.

The Bank shall have an initial authorised capital of US$100 billion. The initial subscribed capital shall be US$50 billion, equally shared among founding members.

According to the NDB website, the bank has approved funding for some 80 projects in the five founding countries, with a focus on ‘transport, water and sanitation, clean energy, digital infrastructure, social infrastructure and urban development’.

Formally announced on 2 September following negotiations that began in 2020, the UAE, Bangladesh and Uruguay now have access to NDB funding. Of the three new members, as a non-Indo-Pacific state, Uruguay may, at first glance, seem an outlier but there is a fuller context at work.

Uruguay is, in many ways, a true Latin American success story. Since 2004, both right- and left-leaning Uruguayan governments have worked hard to diversify the agriculturally-based economy while reducing the country’s dependence on regional heavyweights Brazil and Argentina via the implementation of sound macroeconomic and socially liberal policies.

As the Wilson Centre observed in 2019:

In 1998, 47 per cent of Uruguayan exports went to Argentina and Brazil; by 2017, the two countries accounted for only 20 per cent of Uruguay’s exports. Meanwhile, exports to Asia increased from 11 per cent to 34 per cent in the same period, largely driven by Chinese demand.

Those efforts have borne fruit: Uruguay has joined the ranks of high-income economies with economic growth averaging 4.1% from 2003 to 2018 and, unlike its neighbours, it had, up until the Covid-19 pandemic, escaped recession, including during the global financial crisis. With an investment-grade credit rating, a middle class that has grown to account for around 70 per cent of the population, high levels of education, very low levels of poverty and corruption, and solid commitments to both secularism and liberal democracy, the country of 3.5-million stands apart from much of the rest of the continent.

As the Uruguayan economy has grown and diversified, the country has increasingly felt constrained by its membership in the Mercosur/Mercosul (“Common Market of the South”) trade bloc, of which, together with Argentina, Brazil and Paraguay, it was a founding member in 1991.

The protectionist instincts of Mercosur, which effectively supports the frequently inward-looking economic policies of the Argentinian and Brazilian governments by restricting free trade agreements (FTAs) to bloc-wide arrangements, have increasingly come to be felt as serious constraints by Montevideo, which now wants the ability to conclude bilateral FTAs of its own.

In that sense, as in many others, outward-looking Uruguay would conceivably feel very much at home among the countries of the Indo-Pacific and will be looking to the NBD to help further those linkages, particularly as the Uruguayan government looks to the technology sector as a key to increasing foreign investment and local jobs in a post-Covid world [in Spanish].

 

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