World House Student Fellows Policy Project: Foreign Policy Responses to the BRICS Bank/AIIB

By Akanksha Santdasani (W, 2019), Alex Kaplan (SAS, 2018), Przemek Macholak (Huntsman Program, 2019), Vivek Kai-Wen (SAS, 2019), Mathilde Beniflah (SAS, 2018)


Introduction

If the last three years serve as any benchmark, the development of new multilateral banking institutions is on the rise. In 2014, Brazil, Russia, India, China, and South Africa—the “BRICS” nations and predicted economic powerhouses of the 21st century—announced that they would form a new Multilateral Development Bank (MDB): the New Development Bank (NDB). Just months later, China announced the creation of the Asian Infrastructure Investment Bank (AIIB), a $100 billion project including 57 countries that comprise 50% of the global GDP, to stir economic growth among its developing neighbors. The United States has long been a champion of MDBs and other international lending institutions. Following World War II, the Bretton Woods paradigm placed the United States at the forefront of sovereign development lending, and this trend has continued through the present day. The World Bank and International Monetary Fund (IMF) are both hundred-billion dollar institutions with thousands of salaried employees. However, BRICS countries have felt limited and sidelined by these institutions. Although BRICS represent over one-fifth of the global economy, they only hold 11% of the votes at the IMF. The NDB and AIIB, in part, represent attempts by these nations to recapture influence over international sovereign lending.


The Research

As the primary actors within international financial institutions change, so do their objectives and the political factors that inform their lending decisions. Recognizing that economic diplomacy is as effective as military diplomacy, our group seeks to analyze how institutions such as NDB and AIIB will impact international relations. Specifically, we must consider how these new multilateral development institutions fit into, modify, or influence the current global governance structure and world economic order. The implications of the NDB and AIIB’s emergence introduce new perspectives in the international lending industry. Accurate predictions of the impact of these MDBs presents foreign policy leaders with pertinent questions and urgent challenges in a rapidly evolving global economic and political order.


Our project will explicate and assess the impact of the emergence of the NDB and AIIB from two perspectives. First, we will determine whether the introduction of the NDB and AIIB will enhance or detract from the current system of multilateral institutions, and the likely implications for the global economy. Examining whether these institutions collaborate or compete with incumbent ones such as the IMF and World Bank will provide insight for this analysis. Second, we will identify the ideological underpinnings of these new development institutions to assess their political ramifications and determine their purpose within the existing global order. Are they a form of response to hegemony in the IMF and World Bank? Do they seek to modify the global order? How should a country like the United States respond? Should it increase its engagement with these new institutions, or stay apart. Our research will attempt to answer these questions using economic and political science theory and analyzing them using the lenses of finance and global governance.


Ways Forward

Given this guiding framework, we will assess what the new institutions represent and how they influence the status quo. With the help of existing research, statements from relevant stakeholders, and assessments of existing projects and reports, we will conduct a comparative analysis of existing multilateral institutions with the AIIB and NDB to identify the long term implications of these new MDBs. We will include dimensions of analysis including shareholders’ perspectives, main operational foci, available resources, governance structure, transparency, and metrics of success. This framework will help elucidate changes that the new multilateral institutions are likely to introduce to the global landscape and help predict the consequences of their differing economic ideologies and investment strategies.


To test our hypothesis, we plan to analyze the response of borrowing states, their new economic policies, and the particular strategies they employ to manage their relationships with both the incumbent and new institutions. This will provide insight into the political dynamics of the ties between borrowing and lending states. Moreover, these economic and political realities can reveal more about the relations among the lending states, which are likely to be the dominant forces that define the new global order. On the aggregate, this final section will seek to provide a comprehensive understanding of the intertwining political and economic circumstances in the new global system of economic governance.


Given the normative nature of the project, our research is likely to be predominantly qualitative. We hope to begin by referencing available literature and financial reports to develop the comparative framework which will form the basis of our research. With the help of this framework, we hope to assess the extent to which these institutions fulfill their shareholders’ countries foreign policy interests, and subsequently use these insights to understand the global landscape within which they will operate and determine whether there is room for rivalry or cooperation amongst them. We aim to enrich our research findings through inclusion other available methods like interviews with policy-makers engaged in this burgeoning field of research.


Conclusion

In light of the many recent developments in our global political landscape, assessing the impact and formulating responses to new institutions is an urgent challenge for policymakers. How these new multilateral economic institutions will shape global politics and the implications for the United States are just two of the significant consequences the NDB and AIIB could yield. In addition to being informative from a scholarly perspective, this project seeks to provide timely insights into the decisions of stakeholders and their impact on foreign policy and global economic order. The project hopes to ultimately propose ways to anticipate the potential challenges and opportunities associated with the rise of MDBs.