Development Déjà Vu

The BRICS countries — Brazil, Russia, India, China, and South Africa — announced last week that they are launching two new institutions: the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). These institutions are being promoted as complements rather than competitors to the World Bank and International Monetary Fund (IMF), respectively, Western-dominated institutions that have dictated the policies of global development and finance since their inception 70 years ago at the Bretton Woods conference.

The NBD, which is being called the "BRICS bank," will focus on sustainable development and infrastructure, an area in which the demand for investment far outstrips the supply of money, especially in the aftermath of the 2008 global financial crisis. The symbolic importance of the bank’s launch is clear, sending a signal that emerging economies are dissatisfied with developed global powers’ unwillingness to adapt to a changing, multipolar world order.

But it remains to be seen how the bank and the CRA — which will provide reserve funds for times of economic crisis — will actually affect the global architecture of economic policymaking and other geopolitical concerns. Crucially, the NDB’s policies must be designed to respect and protect human rights, something the World Bank has failed to do.

BRICS countries, which comprise 40 percent of the world’s population and 20 percent of its GDP, have long bristled at their exclusion from the governance of the Bretton Woods institutions. Washington hosts the World Bank, holds the bank’s only veto power, and has refused to relinquish its stranglehold on the institution’s presidency. Washington’s unwillingness to reform the IMF has also provoked frustration. In 2010, for instance, IMF member countries agreed to redistribute voting rights to give more weight to emerging economies — but the changes were never implemented because the U.S. Congress declined to ratify the agreement.

By contrast, the NDB’s commitment to democratic governance is embodied in its power-sharing arrangement. Each member’s initial contribution will be $10 billion, and all are granted equal voting rights. India will claim the inaugural presidency, Brazil will head the board of directors, Russia will take the helm of the board of governors, and the bank will be headquartered in China, with a branch in South Africa.

The NDB seems to be offering an alternative development paradigm to the so-called "Washington Consensus," which conditioned international loans on harsh neoliberal policies that required countries to slash social spending, privatize state resources, gut labor and environmental protections, promote free trade, and impose other austerity measures that have harmed rather than helped developing countries. Indeed, the NDB members are drawn from a diverse group of countries with diverging challenges, political systems, values, cultures, and economies. The Fortaleza Declaration, which outlines the NDB’s mission, embraces a pluralistic view of development that respects self-determination and innovation. Although the details of the NDB’s policies and practices have only been painted in broad strokes, there is a strong sense that the NDB is unlikely to attach strings to its loans; the bank’s leaders have signaled their intent to run a bank of projects, not policies.

However, some observers note that despite the NDB’s democratic trappings, China is the powerhouse of the group. They caution that China may use the veil of multipolarity to cloak self-serving goals. After all, critics argue, it has deployed development aid in the past to lubricate access to the raw materials and energy necessary to fuel its rapid industrial growth, and the resulting projects have not always been well received by affected communities. (Just one example is the Sinohydro-funded Agua Zarca dam in Honduras, which has generated conflict between the project’s backers and an indigenous group that is contesting the destruction of ancestral lands.) The truth is probably somewhere in the middle: China, like all governments, has mixed motives in its aid strategy; it is not an outlier in this regard. But observers fear that infrastructure development funding from the NDB will be geared toward easing corporate and government access to resources, not lifting the world’s poor out of poverty — echoing criticisms leveled at the World Bank.

If this happens, the NBD will be at risk of repeating the mistakes that have plagued the World Bank and have undermined its efficacy and mission for decades. The World Bank has been criticized for failing to incorporate human rights into its policies and operational framework. Civil society organizations, experts, and affected communities have fought to institute reforms, yielding modest improvements, such as the implementation of environmental and social safeguards on projects. Yet these only came after a series of projects that caused repression, displacement, and environmental harms in the 1980s and 1990s, including the Narmada River dams in India, especially the Sardar Sarovar Dam, which incited massive opposition and international opprobrium, and the Chixoy Hydroelectric Dam in Guatemala, which displaced 33 indigenous Maya Achi communities and resulted in the massacre of more than 440 people. (Survivors have still not received reparations.) The World Bank’s dispute-resolution mechanism, called the Inspection Panel, was only instituted after the Narmada dam debacle in India, and its power is limited: For instance, it cannot actually pay damages to aggrieved stakeholders.

Troublingly, too, the World Bank may now be diluting some of the very protections that activists fought long and hard to achieve. A leaked draft of the bank’s proposed new safeguard policies indicates that protections for marginalized communities and the environment will be weakened. Of particular concern are new policies that, according to the Bank Information Center, a watchdog group, will grant governments "unprecedented latitude over decisions regarding when, how, and, in some cases, even if these policies will be applied to particular Bank projects." In emails leaked in early July, senior bank officials expressed alarm to managers that the proposed changes, which reflect the bank’s eagerness to increase lending, would lead to more "problem projects." Human rights and development advocates also fear that the proposed changes pave the way for large-scale power, mining, transportation, and agricultural projects that threaten to unleash environmental destruction and harm the poor communities in which they are located.

Although there is no monolithic view about how to best foster development, reduce inequality, and eradicate poverty, an emerging international consensus supports a framework rooted in human rights, as recognized by global treaties onto which most countries (though not all) have signed. To adopt this framework and avoid the World Bank’s pitfalls, the NDB should not jettison conditionality entirely; it should require compliance with human rights norms in projects that it funds.

If it is to truly usher in transformative change, the NDB should be visionary and proactive, not merely reactive. Instead of incorporating reforms after projects have caused incalculable and irreparable damage, the new bank must ensure from the outset that it funds projects that not only comport with and strengthen the social and environmental safeguards that the World Bank has adopted, but also explicitly incorporate the human rights framework that the World Bank has resisted. Indeed, the mandate to respect and protect human rights under international law must be built into the NBD’s founding documents and integrated into all its policies and operational guidelines.

The NDB need not start from scratch. It should draw from thoughtful recommendations to the World Bank distilled from the bank’s past failures. For example, the NDB should foster the self-determination not only of nations but also of local communities in setting development agendas. It should do this by enlisting the participation of civil society organizations both at the project level and as it sets its overarching mission. This will engender goodwill about the NDB’s commitment to policies that include affected communities as partners, not merely subjects.

Because women, the disabled, the poor, linguistic and cultural minorities, and other marginalized groups have been historically excluded from decision-making by international financial institutions, the NDB should also include a nondiscrimination policy that ensures information and consultation are accessible to all groups. Such access can be achieved by, among other things, presenting materials in local languages and in both written and oral form, and displaying sensitivity to the cultural dynamics that may impede participation. Moreover, the NDB should develop tools to accurately assess the human rights implications of projects before they are initiated and assess those implications throughout the project, which requires that the bank be adequately staffed and funded to ensure careful monitoring. And because it is difficult to hold international organizations to account, the NDB should include a waiver of immunity, which would help ensure that it could not shirk responsibility, at least for projects that end up evincing egregious disregard for human rights. Certainly, the bank should include a robust and independent complaint mechanism empowered to make those harmed by projects both heard and compensated.

If the New Development Bank can transcend self-interest and the World Bank’s economic orthodoxy, embracing human rights though a clear mission and enforceable policies, it has the potential to advance the dignity and well-being of the globe — including some of its poorest people. In the world of international institutions, this would be nothing short of a game-changer.