The Financial Times praises the creation of the BRICS Bank.
"Emerging markets want to go beyond rhetoric," says an editorial in the British financial newspaper; however, the publication highlighted that the institution's objectives remain uncertain: whether they will complement or rival the World Bank and the IMF.
By Lara Rizério
SÃO PAULO - The British newspaper Financial Times, after offering some criticism in its latest reports on Brazil, praised the initiative to create the BRICS bank (Brazil, Russia, India, China and South Africa) in an editorial this Monday.
As the newspaper points out, the countries that make up the acronym want to do more than just talk the talk. However, the publication questions whether the group's intention is to create a competing or complementary institution to those that already exist, such as the World Bank and the IMF (International Monetary Fund).
"[...] An interesting counterpart emerged. The BRICS also announced a US$100 billion emergency financing agreement designed to help emerging countries cope with external shocks that throw their economies off course," he pointed out.
According to the newspaper, despite signaling that the BRICS Development Bank could be a "competitor," "history and political reality, however, suggest that they will lose courage, and the bank will end up as a complement and not a replacement."
The Financial Times points out that the IMF has increased its unpopularity in much of the emerging world – and now in Western Europe – with the conditions it imposes on emergency loans during crises. It typically asks governments to implement unpopular measures, such as cutting spending or raising taxes.
"But attaching some kind of condition to the loans is inevitable. It will not be an easy task for the BRICS to determine which shocks truly come from outside and need temporary cushioning, and which will require the kind of policy changes demanded by an IMF bailout," the newspaper emphasizes. On the one hand, it highlights, the fall in global food prices is a negative shock to the balance of payments of a country that exports agricultural commodities, but only a "fool" would continue indefinitely to bail out the country in the blind faith that prices will recover, the newspaper says. If they don't, government spending may have to be cut and taxes raised to rebalance the economy.
Furthermore, it points out that the creation of the new institutions will require an alignment of the main economic policies of emerging economies. "Even with all their flaws, institutions like the IMF and the World Bank are reasonably clear about the principles they follow and how they will be implemented. The BRICS, which have very different approaches to fiscal policy, financial deregulation, and macroeconomic management, will have to adopt a consistent and similar approach. This has not been done so far," the newspaper states.