Evaluating the BRICS Financing Mechanisms: Q&A with Paulo Nogueira Batista, Jr

By Samantha Igo

Comprising an estimated total population of nearly 3.21 billion people, the BRICS nations of Brazil, Russia, India, China and South Africa constitute the world’s five major emerging economies and are a significant influence on international affairs.

In 2012, the BRICS made the momentous decision to establish their own financing mechanisms, including a new monetary fund known as the BRICS Contingent Reserve Arrangement, and their own source of development financing, the New Development Bank (NDB).

In his new book, “The BRICS and the Financing Mechanisms They Created: Progress and Shortcomings,” Paulo Nogueira Batista assesses the progress and shortcomings of the BRICS financing mechanisms to date. A Brazilian economist who was one of the founding members of the NDB, he provides an insider’s account of the negotiations that led the BRICS to create their own monetary fund and development bank, including episodes and difficulties in reaching results and in developing the new financing mechanisms. His book also presents an analysis of important aspects of the international economy and the international relations of the BRICS, in particular of their often-problematic relations with the West. In all, Nogueira Batista finds that progress has been achieved but much remains to be done to fulfill the founders’ plans and intentions for these financing mechanisms. 

Below, Nogueira Batista responds to questions and shares the one policy change he would make overnight: 

Q: You’ve played a key role in international economics, first as the Executive Director for Brazil and other countries to the International Monetary Fund and then as Vice-President of the New Development Bank in Shanghai. What brought you to this career path, and how have these positions shaped your view of international economics?

PNB: I have always been focused on international economic issues, as professor and researcher, since the early 1980s. In the mid-1980s, I worked for the Brazilian government, mostly on international financial matters and debt renegotiations, at the time of the Latin American foreign debt crisis of which Brazil was a leading protagonist or, perhaps I should say, victim. I was at the time part of the Brazilian negotiation team that sought unsuccessfully to reach a financing agreement with the International Monetary Fund (IMF). Little could I know that I would become a little more than 20 years later the Executive Director for Brazil at the IMF, in Washington D.C., and that, strangely enough, I would negotiate for Brazil not a loan from the IMF but a loan from Brazil to the IMF! This loan was part of the G20 effort to increase the firepower of the IMF after the outbreak of the financial crisis in 2008.

Q: In 2012, the BRICS made the momentous decision to establish their own financing mechanisms, and you were personally involved in the negotiations tha led to the founding the New Development Bank and the BRICS Contingent Reserve Arrangement. What led to that decision and what was it like starting a new development finance institution?

PNB: I explain that in the book in detail, not only the plans but the progress of the negotiations between the BRICS as well as the actual setting up of the group’s financing mechanisms. Since 2008, the BRICS had been involved in what was, on our side, a good-faith effort to reform the IMF and the World Bank after the international financial crisis in 2008. We worked actively for that in the IMF, the World Bank and also in the G20, a group of which the five BRICS were members. The idea that was professed by all G20 members at the initial phase of the crisis, including the US and the European nations, was that the Washington institutions had to be reformed to make them more representative of developing and emerging-market countries, reflecting these countries’ increasing weight in the world economy. But we realized at one point, around 2011/2012, that Americans and, especially, Europeans would not follow through on this promise, or would do so only in part. We decided then to follow our own course. Discreetly, without much fanfare, we started to plan and negotiate our own development bank and our own monetary fund – while remaining, of course, members of the Fund and the World Bank and maintaining our common view that the governance of these major institutions remains outdated. 

Q: What have been the prime successes of the BRICS financing mechanisms?

PNB: After two years or so of difficult negotiations, from 2012 to mid-2014, we managed to conclude the Articles of Agreement of the monetary fund (the Contingent Reserve Arrangement – CRA) and of the development bank (the New Development Bank – NDB). Since the entry into force of these two agreements, work was undertaken to make both financing mechanisms fully operational, with the BRICS having completed all the relevant details. The NDB is a fully operational bank, with paid-in capital, borrowings in international capital markets, approved strategy, staff, etc. The CRA is also fully operational, with all the technical details having been established by the central banks of the BRICS countries.

Q: While these financing mechanisms hold great promise, difficult negotiations among the BRICS in the mid 2010s highlighted some of the mechanisms’ weaknesses. Where have the BRICS financing institutions fallen short, and what needs to be done for them to function as intended?

PNB: These difficulties, both in the negotiating phase and in the implementation phase, are discussed at length in the book on the basis of my own experience in the process. From the outside, it might seem easy, or easier, when only five countries are around the table. But this was not the case at all. One of the advantages of my book, when compared with other books or papers on international economics or international relations, lies in the fact that the author is a practitioner who was, so to speak, not only present at, but active in the creation of the BRICS formation, the CRA and the NDB. I believe the groundwork has been laid successfully, as I explain in the book, but there has been a loss of momentum since about 2015. Things have been moving forward much too slowly. The NDB and the CRA need a restart, and the BRICS themselves need to be reminded of their original ambitious plans. To mention just one example, this means accelerating the entry of new members into the NDB. Only very recently, as late as 2021, has this process finally begun with the three countries joining the bank – Uruguay, Bangladesh and United Arab Emirates. This needs to continue, preferably at a faster pace. 

I explain in the book that the slow progress in the NDB, as well as in the CRA, reflect macro as well as micro or more institution-specific problems. Among the macro issues, I highlight the tense relations between China and India, Russia’s crisis with the West after the annexation of Crimea and Brazil’s political and economic decline after Dilma Rousseff’s impeachment in 2015 and especially with the Bolsonaro government since 2019. In so far as micro or institutional problems are concerned, I highlight the excessively conservative mind set of the central banks of the BRICS, with a negative effect on the negotiations and development of the CRA. In the case of the NDB, the problem was mostly of poor choices of the BRICS government for the posts of Presidents and Vice Presidents of the NDB. For a new institution like the NDB, it would have been necessary to appoint dynamic and creative leaders, fully aware of the founding countries’ expectations for the bank. Broadly speaking, this has not been the case. Unfortunately, with some exceptions, the choices were mostly mistaken and have had a major adverse impact on the development of the bank so far. 

Q: Your book provides analysis of the intersection between international economics, international relations and geopolitics. How did these different arenas play a role in the successes and shortcomings of the BRICS’ financing mechanisms?

PNB: The book is based on a global view of the way the international economy is evolving in the first decades of the 21st century, with the relative decline of the West in economic and demographic terms, and the corresponding increasing relative weight of the emerging market countries, especially in Asia. I explain how this economic change coupled with the resistance of the US and Europe to accept it and its implications, including in terms of global governance, led to the formation of the BRICS in 2008 and, a few years later, to these countries’ decision to constitute a new monetary fund and a new development bank. While recognizing the validity and importance of these decisions, the book also attempts to be realistic in explaining the disappointments and the shortcomings of what we achieved thus far. This should help, I hope, set the BRICS on the path of strengthening and improving the financing mechanisms they created, as well as their own coordination.

Q: What do you see as the future of the BRICS as a cooperative entity in the post-COVID-19 world?

PNB: The COVID-19 pandemic has shown, one more time, the importance of international coordination. It has also highlighted, yet again, the importance of the BRICS countries in the world and for the international relations of each of the five members. The book argues that the BRICS and the financing mechanisms established by them are here to stay and, despite inevitable difficulties and differences of opinion, will remain a part of the international landscape in the decades to come. Most of the reasons that brought these countries together, I argue in the book, are still there and can be expected to persist in the foreseeable future.  

Q: What is the one policy change would you make overnight?

PNB: If it were in my power, I would say – half-jokingly, but only half-jokingly – that I would replace all, or almost all, the members of the Administration of the development bank, i.e., the President and most VPs, as well as many of the higher level in staff, by more competent and dynamic people, possessing a complete understanding of the NDB’s reason of existence. It was never supposed to be a bureaucratic, slowly moving organization, but a dynamic and innovative bank, committed to promoting a new vision of development and international finance, geared to solving crucial issues of our century, including the catching-up of backward countries and new immense challenges such as the climate crisis and the outbreak of pandemics like the one we are struggling with since 2020.