2023-06-17 04:13:54
In early 2015, the BRICS countries, led by China, launched a new bank located in a luxurious skyscraper in Shanghai, to come “as an alternative to the International Monetary Fund and the World Bank, which are dominated by the United States.”
After its launch, the BRICS New Development Bank announced that it had approved a first group of loans totaling $811 million for renewable energy projects in four of its member countries.
Today, the New Development Bank has stopped making new loans, as it is having trouble raising funds in dollars to pay off its debts, the newspaper reported.Wall Street Journal“.
According to the American newspaper, the survival of the New Development Bank, which was established with the aim of reshaping international finance, remains dependent on its dependence on the US dollar.
Shortly following Russia’s full-scale invasion of Ukraine, on February 24, 2022, the Bank froze new lending to Russia to reassure investors of its compliance with Western sanctions. However, Wall Street soon became wary of lending a Russian-owned bank 20 percent.
Since then, the BRICS bank has had to take on increasingly expensive debt to service old loans and keep abreast of its own liquidity requirements.
BRICS is an organization of five emerging economies: Brazil, Russia, India, China and South Africa.
BRICS was founded in 2006 by the first four countries and was called “BRIC” following the initials of the names of those countries when the foreign ministers of the first four countries (Brazil, Russia, India and China) met in New York City, in September 2006, on the sidelines of the discussion. General Assembly of the United Nations before the accession of South Africa later.
BRICS works to encourage trade, political and cultural cooperation among the countries belonging to this alliance, as the first meeting of the organization, in 2009, adopted the establishment of a bipolar world order.
Search for new members
To boost its resources, the New Development Bank is in talks with Saudi Arabia, Argentina and Honduras regarding joining its membership, according to the Wall Street Journal, citing people familiar with the matter.
When the New Development Bank took out $1.25 billion in bonds in April, the first since the Russian invasion, it cost nearly five times the cost of the previous borrowing.
“The bank should be concerned regarding not being able to access the capital markets,” said Luciana Acioli, senior researcher at Brazil’s Institute of Applied Economic Research. “It’s not a problem that can be fixed right away,” she added.
On the other hand, the New Development Bank said in a statement that it believes that there is “great interest in the bonds issued” by it. He added that the sources of liquidity and loans are still strong.
Founded with a capital of $10 billion by the five founders, the members found that it would be difficult to rely solely on Chinese banks and capital markets to provide the necessary liquidity.
The New Development Bank began borrowing billions of dollars from institutional investors on Wall Street as well as from state-owned banks in China.
Some of what he borrowed was denominated in Chinese yuan, but regarding two-thirds of the bank’s loans were denominated in dollars, which is inconsistent with the bank’s stated goal of breaking its members’ dependence on the dollar, according to the newspaper.
With financing available, the bank began lending to members from $1 billion in 2017 to $30 billion at the beginning of last year.
Fitch downgraded the bank’s credit rating in July 2022, citing the challenges facing its access to dollar bond markets.
Investment bankers told BRICS representatives that the cost of borrowing new debt might be more than four times what it was before the invasion, causing it to abandon some fund-raising attempts, according to people familiar with the matter.
There is no indication that discussions with Saudi Arabia or other countries will lead to a major capital injection, leaving the bank stuck in its current quagmire, with little sign of improvement.
“The BRICS countries need to work together to confront these difficulties,” Assioli of the Institute of Applied Economic Research told the newspaper. “But the only difference is that it will be difficult for them to overcome the challenges if the war continues in Ukraine,” she added.
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