New Developments in Development Finance

The world is currently experiencing a period of transformation, marked by a gradual move away from financial institutions dominated by Western countries towards newer and more just alternatives. This shift is exemplified by the recent selection of two vastly different presidents for the World Bank and New Development Bank (NDB). The appointments provide insight into why developing countries are seeking new alternatives to Western financial assistance. Meanwhile, Tunisia's recent decision to reject of an IMF bailout in favour of pursuing BRICS membership is further evidence of this change.

New Presidents With Different Precedents

The New Development Bank and the World Bank have both recently elected new presidents. But the new heads have very different backgrounds and there are significant differences in the philosophies that underlie their and their institutions differing approaches to development finance.

The World Bank's new president, Ajay Banga, comes from a corporate background, having served as the CEO of Mastercard. His tenure at Mastercard was marked by controversy, including allegations of predatory financial practices in South Africa, where Mastercard partnered with Net1 to distribute social grants. The contract was ultimately cancelled due to the widespread abuse of unlawful debit orders which drained grant recipients’ bank accounts.  

Banga's approach to development finance, which prioritizes financial engineering and private sector solutions, is emblematic of the broader philosophy of Western financial institutions such as the IMF and World Bank. These Western controlled financial institutions have come under increased criticism for imposing neoliberal policies on developing countries in exchange for bailouts, including insistence on austerity and privatisation, regardless of the impacts on the poor.   

In contrast, the new president of the New Development Bank, Dilma Rousseff, has an approach to development which prioritizes government intervention and social programs to reduce poverty. In her former role as Brazil's president, she oversaw large increases in social transfers within the Bolsa Familia program, which provides direct cash transfers to poor families. The program was praised for leading to measurable reductions in poverty in Brazil.

Rousseff's political background consequently makes her well-suited to lead a development bank that emphasizes poverty reduction - a key priority for emerging market economies. The appointment is also significant in that it is the second time the NDB (initially an Indian proposal) will have a Brazilian head despite being headquartered in Shanghai. In contrast, the World Bank and IMF are effectively dominated and led by a single developed country, the United States.    

The appointment of Rousseff as head of the New Development Bank, and her pro-poor approach, contrast sharply with the World Bank and IMF whose insistence on austerity and privatisation end up leading to higher levels of poverty and inequality. While cuts to food and fuel subsidies are supposed to stabilise government finances these cuts have a negative impact on the poorest citizens who rely most heavily on this relief.    

The BRICS New Development Bank's emphasis on balancing economic growth with poverty reducing measures represents an attractive alternative to the Western approach. As the world grapples with the ongoing challenges of poverty and inequality, the importance of a developmental approach that prioritizes government intervention and social programs should not be dismissed out of hand.

Tunisia Rejects IMF Bailout, Seeks BRICS Membership Instead

Tunisia, the birthplace of the Arab Spring, is facing a serious economic crisis. Despite receiving a $2.9 billion loan from the International Monetary Fund (IMF) in 2016, the country continues to struggle with high inflation, rising unemployment, and social unrest, with a debt-to-GDP ratio that has more than doubled from approximately 40% in 2011 to over 80% today.

The IMF recently offered another $1.9 billion bailout package to Tunisia, but the country's president, Kais Saied, has made it clear that he will not accept the "diktats" attached to the deal. The President expressed his concerns over the impact the IMF's proposed subsidy cuts could have on the Tunisian people, potentially leading to further unrest. He made it clear that he does not want to be dictated to by external forces and would prefer to find alternative solutions.

This rejection of the IMF's terms is particularly significant considering the President then suggested Tunisia's could join the BRICS bloc as an alternative. The BRICS countries - Brazil, Russia, India, China, and South Africa - have been working together since the financial crisis in 2008 to build a new global financial system less dependent on Western-controlled institutions like the IMF and the World Bank.

While Tunisia's proposal to join BRICS may seem ambitious, it is not without precedent. The bloc is currently considering the addition of several new members, including Egypt, Algeria, Saudi Arabia, and Iran. Tunisia's strategic location in North Africa could also make it an attractive addition to the group despite its small population.

Joining BRICS would offer Tunisia access to alternative sources of financing, as well as new trade opportunities. The bloc has already established its own development bank, the New Development Bank, which provides loans to member countries for infrastructure projects and other development initiatives in their own currencies.

Tunisia could benefit from this, particularly in terms of financing much-needed infrastructure projects, which have been neglected due to the country's financial difficulties. Difficulties that have arisen, in part, from onerous debt repayment obligations in increasingly expensive foreign currency.

Furthermore, BRICS countries have a focus on poverty reduction, which is particularly relevant to Tunisia, given the country's ongoing social and economic challenges. The New Development Bank, for example, has a strong focus on sustainable development, which includes poverty alleviation and improving access to basic services like water, sanitation, and healthcare.

While joining BRICS is not a silver bullet solution to Tunisia's economic challenges, it is a bold move that could pay dividends in the long run. It remains to be seen whether BRICS will accept Tunisia's proposal, but the fact that the country is even considering alternative solutions to the IMF's bailout package is significant. It signals a shift in the balance of power away from the Western-dominated financial system towards new more equitable solutions.